Funded trading has exploded in popularity in recent years as an innovative way for aspiring traders like me to build trading skills and earn an income without putting up their own capital. Here's my overview of everything traders need to know about the world of funded trading.
What Is Funded Trading?
Funded trading, also sometimes referred to as prop trading, provides traders access to trading capital from a firm in exchange for a profit split. Traders are able to trade the firm's capital, while the firm handles the risk management, compliance, and technological infrastructure.
Rather than trading their own accounts, funded traders trade company accounts provided by a prop firm. Firms offer funding tiers ranging from $10,000 to over $1 million in trading capital based on a trader's skills and experience.
How Funded Trading Works
Prop firms use an evaluation and testing process to vet traders before providing access to capital. Traders typically go through the following steps:
- Application – Traders fill out an application with their trading history, experience, and goals. Firms review these to ensure traders are a good fit.
- Evaluation/testing – Traders take an evaluation combining psychological assessments with simulated or paper trading performance metrics. These comprehensive evaluations identify skilled traders.
- Funded account – Traders who pass evaluations are granted access to a funded trading account, commensurate with their abilities. Firms determine account size allotments based on performance in the evaluation stage.
- Ongoing evaluation – Funded traders must maintain certain performance thresholds to keep their funded status. Some firms require periodic re-evaluations as well.
During the testing and funded trading phases, unsuccessful traders do not risk any capital beyond small evaluation fees. Meanwhile, successful traders gain the opportunity to earn an ongoing income from trading a firm's capital.
The Benefits of Funded Trading
Funded trading offers UK traders several potential benefits:
- Trading larger size – Funded accounts provide access to more trading capital than most aspiring traders can self-fund, particularly when starting out. This allows traders to get experience managing larger positions.
- Earning extra income – Successful funded traders earn an income from their profit split without putting up any of their own trading capital. Profit splits range from 80/20 to 70/30 in favor of the trader.
- Accelerating development – Working under the guidance of an established prop firm can accelerate your progress compared to going it alone. You gain access to their accumulated trading expertise.
- Risk management – Reputable prop firms implement strong risk management policies on their funded accounts to protect their capital. This takes much of the monetary risk and emotional pressure off of traders.
- Compliance infrastructure – Firms handle all the legal, compliance, reporting and technology costs required for managing investor capital.
For aspiring or struggling traders like me, funded trading provides an avenue to gain experience, earn income, and take the next step – all while offloading much of the risk and infrastructure concerns.
Pros and Cons of Funded Trading
Of course, funded trading is not right for everyone. As with any opportunity, there are both advantages and drawbacks.
Pros
- Gain access to larger trading capital
- Earn income from trading without large upfront costs
- Fast track your trader development
- Trade with less personal monetary risk
- Leverage a firm's risk management expertise
- Focus on trading without worrying about back office infrastructure
Cons
- Profit splits mean sharing trading gains with the firm
- Ongoing performance metrics must be maintained
- Less control over some account parameters set by the firm
- Still requires perseverance through evaluation & testing stages
- Potentially high competition depending on firm
As with any endeavor, it comes down to aligning your goals and temperament with the structure of funded trading. The rewards can be substantial, but you must be ready to put in the work.
Choosing a Reputable Funded Trading Firm
If funded trading appeals to you in concept, choosing the right firm is absolutely crucial. Here are key factors I would evaluate:
- Track record & experience – Look for firms with a multi-year track record and proven success funding traders. Beware of new or sketchy operators.
- Funding terms – Account minimums, maximums, profit splits and payout schedules vary. Make sure terms match your goals.
- Risk management – Robust risk management protects you and the firm's capital. I would prioritize firms with strong risk policies.
- Reputation – Look for positive reviews from current and past traders. Beware of red flags like non-payment of profits.
- Transparency – Legitimate firms are upfront about evaluation details, fees, profit splits and payout timelines.
Thorough vetting gives you the highest chance of partnering with a reputable backer that aligns with your trading style and goals.
Funded Trading Plus are a great option, you can find them here.
Getting Started with Funded Trading
If you believe funded trading is a good fit, here are my tips for getting started:
- Self-evaluate – Take an honest assessment of your trading abilities before applying. Funded trading is very competitive.
- Study evaluation criteria – Understand what metrics firms test for so you can demonstrate your skills.
- Paper trade – Practice trading strategies in a simulated environment to prepare for evaluations.
- Apply to multiple firms – Increase your chances by putting in applications with several compatible firms.
- Keep improving – If your first attempt fails, figure out your weaknesses and work on improving before re-applying.
With perseverance and dedication, funded trading can be an avenue to take your trader development to the next level.
The Bottom Line
Funded trading opens up an intriguing middle path where traders get access to significant capital without fully self-funding. The model allows firms to profit from talented traders, while helping those traders manage risk and accelerate their progress.
However, funded trading is not a shortcut. It takes skills, grit and patience to pass the rigorous evaluation stages and ultimately succeed as a profitable funded trader. But for determined traders willing to put in the work, funded trading provides a powerful launchpad.
By choosing a reputable UK firm with strong risk management, funded trading could be your ticket to achieving your trading income goals faster than going it alone. If you have the commitment and determination, it's an opportunity worth considering.
Key Skills Needed to Succeed at Funded Trading
Getting accepted into a reputable UK funded trading firm is just the first hurdle. To ultimately succeed as a funded trader, you need to have the right mix of skills. Here are some of the most important abilities top-tier traders possess:
- Technical Analysis Skills – You must have a solid grasp of technical analysis to identify profitable trades. Skills like chart pattern recognition, indicators, and Japanese candlestick patterns allow you to spot opportunities in the markets. Funded trading evaluations rigorously test these core trading skills.
- Risk Management – With access to large trading capital comes greater risk management responsibilities. Successful funded traders have robust risk management methodologies they adhere to strictly. This includes appropriate position sizing, stop losses, maintaining a risk-reward ratio, and limiting overall account risk.
- Mental Discipline – Controlling your emotions is critical when trading large positions. The mental fortitude to stick to your trading plan while coping with losses separates the best traders. Funded trading adds pressure – can you trade consistently despite volatility?
- Adaptability – Markets evolve and trading conditions change. The most skilled traders dynamically adapt their strategies without deviating from sound risk principles. Evaluations assess your ability to trade profitably across different market environments.
- Specialization – The most lucrative traders master one or two asset classes in-depth rather than hopping across many. Whether you specialize in forex, futures, indices, or crypto, targeted skills pay off.
Cultivating these areas gives you the toolkit necessary to handle the responsibilities and capital levels involved in funded trading.
Developing Your Skills to Get Funded
If you need to improve your skills in any of the above areas, here are some tips:
- Study from the best – Reading books, forums, and content from elite traders accelerates learning. Join a funded trading community to gain insights from successful traders.
- Practice extensively – Demo and paper trading are crucial ways to test strategies and work on weaknesses without risk. Achieve consistency in practice before applying for evaluations.
- Get educated – Formal trading education, such as courses, mentoring programs, and combine hands-on practice with robust risk and psychology principles.
- Reflect on mistakes – Keep a trading journal to look back on losses objectively. Analyze errors to strengthen future decision-making.
- Specialize – Focus deeply on mastering the nuances of specific asset classes, instruments, or trade types that best fit your abilities.
With dedicated self-improvement across both trading skills and psychology, you can position yourself to shine during the funded account evaluation process.
Expectations for Ongoing Success as a Funded Trader
Finally, it's crucial to have realistic expectations once you achieve a funded trading account. Here's what to expect:
- Ongoing evaluations – Most prop firms require periodic profit target checks or re-evaluations to ensure traders maintain standards. You must produce consistent results.
- Responsibility for larger capital – Trading a 6 or 7 figure account is very different from a small personal account. Risk management and emotions management become even more critical.
- Potential changing market conditions – What works today may not work forever. Adaptability is key to sustaining profitability long-term.
- Competition – Other skilled traders have access to the same capital and platforms. Consistently outperforming them is challenging.
- Potential pressure – Some traders feel increased pressure trading firm capital vs their own. Managing psychology is vital.
The path doesn't get easier once funded. To earn a long-term income from trading, you must stay hungry and committed to excelling, even after clearing the initial funding hurdle.
The most successful funded traders have realistic expectations combined with the drive and skills to thrive in the competitive world of prop trading.
