How to Become a Funded Futures Trader

A funded futures trader is someone who uses money that is provided by a proprietary trading firm (prop firm) to trade futures. Traders do not risk their own money. Instead, they work with the firm's funds. For this, they give a part of their profits to the company.

Independent vs. Funded Trading

Independent traders use their own money. It means that they take full responsibility for profits and losses, and this also means that they need their own money to cover margin requirements and potential losses. Funded traders, on the other hand, use the money of a prop trading company. In return, they follow the company’s rules and give the company a part of their profits.

Pros and Cons of Funded Trading

The main advantages of funded trading are:

• Access to larger capital: Traders can control larger positions than they could with personal funds.
• Lower personal risk: Losses do not affect personal savings.
• Structured risk management: Firms have strict rules that help traders to manage their risks.
• No debt obligation: Even if traders lose money, they don’t owe any money to the company. The main disadvantages of funded trading are:
• Strict trading rules: Firms impose specific restrictions on drawdowns, lot sizes, and trading styles.
• Profit splits: Traders give a part of their earnings to the firm.
• Evaluation process: Not all traders receive money. First, they must pass a test and only after that, the company gives them funds. Tests are normally difficult.

Basics of Futures Trading

Futures contracts are agreements to buy or sell an asset at a predetermined price on a future date. These contracts are usually used in commodities, stock indices, and currencies. With them, traders can speculate and earn on the price movements of an asset without any need to own the asset.

How Leverage Works

With leverage, traders can control a large contract size with a relatively small amount of capital. For example, with 10:1 leverage, a trader can control a $100,000 position with just $10,000 of his own money. Leverage increases potential profits, but it also increases losses. This is why it is considered risky to trade with leverage, and it requires good risk management skills.

Main Risks in Futures Trading

One of the main risks in futures trading is the market volatility. Rapid price changes can lead to significant losses if traders do not manage their trades. If the account balance falls below the required margin, it can cause margin calls, and the position closes automatically. This is why it is important to monitor open positions constantly. Finally, fear and greed can lead to impulsive decisions, and they increase the likelihood of losses.

How to Get Funded for Trading

Proprietary trading firms provide traders with capital, in exchange, they ask for a share of the profits. These firms make money from successful traders. They also often charge fees for evaluation programs.

How Funded Accounts Work

Traders must pass an evaluation phase, there, they prove that they can trade profitably. If they pass the evaluation phase successfully, they receive some funding and trade under the guidelines of the firm.

Popular Prop Firms

• FTMO: This company offers traders several account sizes, clear risk rules, and structured payouts.
• Topstep: This company specializes in futures trading with a two-step evaluation process.
• Earn2Trade: This firm provides educational resources and funding opportunities.
• MyForexFunds: This company originally focused on forex but also funds futures traders.
• Supertrade: This company supports a variety of trading and funding options.

Passing a Prop Firm Evaluation

Each firm has its own set of rules, and to pass the evaluation, traders have to follow those rules. Among the common requirements are the following:

• Profit targets: Traders must achieve a specific return, which usually varies around 10%.
• Maximum drawdown limits: Traders cannot exceed a set loss threshold.
• Consistency rules: Some firms require traders to trade for a minimum number of days.

How the Evaluation Process Works

Here is how the entire process works.

• You register for the evaluation program and pay fees.
• After that, you start trading. You trade according to the company’s risk rules. You must hit profit targets, don’t hit drawdown limits.
• Pass the evaluation and get access to a funded account with real capital.

Tips to Succeed

Here are some tips that will help you to succeed.

• Stick to a trading plan: Avoid impulsive decisions and follow a tested strategy.
• Manage risk: Use stop-loss orders and position sizing, it will help to limit losses.
• Maintain consistency: Trade regularly and avoid unnecessary risks.

How to Develop a Profitable Trading Strategy

To develop a profitable trading strategy, choose a suitable trading style. Here are the most common of them:

• Scalping: This trading type is suitable for you if you like to make quick trades. Trades last seconds to minutes, and you benefit from the smallest price movements.
• Swing trading: This trading type is suitable if you prefer holding positions for several days and benefit from broader market trends.
• Day trading: You can choose this trading type if you prefer to open and close trades within the same day. Don’t forget about technical analysis. Use technical indicators such as Moving Averages, RSI, MACD, and others, to determine market trends, and chart patterns to forecast the price movements.

Risk Management Principles

If you want to trade profitably, learn to manage risks. Use stop-loss orders, they protect against excessive losses. Adjust trade sizes based on the account balance and your risk tolerance. Finally, learn about a risk-reward ratio, and aim for at least a 1:2 risk-reward ratio. This will ensure that profit outweighs losses.

Practice and Improve Trading Skills

Now, you can practice, test your strategy, and improve your trading skills.

Use Demo Accounts

A demo account allows you to practice your strategy with virtual money. You can learn to use the platform, and familiarize yourself with market movements, and all this without financial risks from your side.

Keep a Trading Journal

Record every trade, and all information about it, including entry and exit points, and results. It will help you to identify correct patterns and increase your profits.

Emotional Discipline

If you want to earn on trading, you have to learn about emotional discipline. Here are some rules that will help you:

• Avoid revenge trading: If you try to recover losses, you can make more mistakes.
• Stay patient and disciplined: Don’t rush into trades, they can lead to poor decisions.
• Control fear and greed: You shall avoid emotional decision-making.

How to Withdraw Profits

Most firms have a specific schedule to withdraw profits. For example, they can permit you to allow profit every two weeks or every month. Some companies require a minimum profit before you can withdraw it.

How Much Can You Earn?

Earnings depend on a lot of factors, such as the trader’s experience, account size, and the share of the profit that the firm takes. Successful traders can earn thousands of dollars per month.

Trading Restrictions

There are some restrictions that prop trading companies set. For example, traders cannot lose more than a specified percentage per day. Some companies forbid trading during major news events because there may be a surge in volatility.

Conclusion

Prop trading firms provide traders with good money to allow them to trade and earn without risking their own money. However, passing a company’s evaluation is not easy. To earn, you shall maintain emotional discipline, develop a good trading strategy, and follow the company’s rules.