How Does a Funded Account Work?

If you want to trade in financial markets, you need money. The lack of money creates a significant barrier for many traders. To allow traders to trade without using their own money, many proprietary trading firms offer funded accounts. A funded account provides a trader with the money of the prop trading firm. If a trader has a funded account, he can trade even if he has no money that he can use for this. This is one of the main reasons why prop trading gained so much popularity.

What Is a Funded Account?

A funded account is a trading account. The main difference between a traditional trading account and a funded account is that the funded account is provided by a proprietary trading company. The firm assesses the skills of a selected trader and gives his funds based on his skill level. The trader has to follow the rules of the company, and he gives a part of his profit to the company. In return, he doesn’t have to risk his own money.

Who Is It Suitable For and Why Is It Needed?

Funded accounts are suitable for all types of traders. Some traders have enough knowledge and experience but cannot trade at a large scale because there is not enough money. Others want to trade but without risking their own funds. This approach allows traders to focus on their strategies and the process instead of worrying about funding. Also, a funded account is suitable for those traders who need to be more disciplined, the company requires to follow stict rules, and it helps them.

How Does a Funded Account Work?

To get a funded account, you would need to pass several stages. First, you pass an evaluation phase. During that stage, the company assesses your trading skills, checks how you manage risks, and whether your trading is consistent. After that, you get a real account with real money, and you can trade. Whatever you earn, you give a part to the company.
Risk management plays a special role in trading with a funded account. Such companies impose very strict drawdown limits and daily loss restrictions. It helps the company to make sure that you don’t lose more than earn. Another important detail is that you share your profits with the company. You earn, but you receive only a specific percentage of your earnings. The other part goes to the company. Also, the firm sets some rules, such as specific assets that you can tarde, strategies that are allowed or forbidden, and some more.

Who Provides Funded Accounts?

Proprietary trading firms are the main providers of funded accounts. These firms invest in traders and in return, they get a share of their profits. Some well-known firms in the industry include FTMO, Topstep, The Funded Trader, MyForexFunds, and Supertrade. Each firm has unique requirements, rules, and payout structures.

Process of Obtaining a Funded Account

To get a funded account, traders have to comply with a lot of requirements. They have to show that they can get a profit consistently, and not just from time to time. Traders have to follow very strict rules to manage risks. They are obliged to use only trading strategies that are approved by the company. This is why only skilled and disciplined traders can access the funded accounts. The trader has to pass several evaluation phases during which he has to prove that he is worth the account. He has to reach specific profit targets and adhere to the preset risk limits. He also has to show that he can maintain profitability over an extended period of time. If they pass the evaluation phase, they get a funded account and can trade with the money of the company. When a trader uses a funded account, he shall follow the policies of the company all the time. If he breaks the rules, the company may close the account, and the trader may be even fined. The trader can withdraw his earnings according to a schedule that is also determined by the company.

Benefits of a Funded Account

The main benefit of a funded account is that it gives traders an opportunity to trade without using their own money. It lowers the financial barrier for traders who know how to trade but lack money. It helps traders to focus on their activities and not worry about where to get money. Prop trading companies also have a lot of money. This is why traders can count on more funding if they trade properly, and this can increase their income a lot.
Another benefit is that traders have to trade based on specific rules. This makes them disciplined and teaches them to use a specific strategy and improve it constantly. Many prop trading firms also provide educational resources, coaching, risk management tools, and other resources to help their traders earn more.

Risks and Limitations

Even though funded accounts have a lot of advantages, they have some restrictions and even drawbacks. For example, most prop trading firms have restrictions on withdrawals. Traders can withdraw their earnings based on a specificied schedule. Also, in some companies, traders have to trade for a specific minimum time before they get access to withdrawals. Some companies take a very high share of the earnings, and it also can be discouraging. Another drawback is the penalties that the company imposes when a trader breaks the rules. If a trader exceeds risk limits or doesn’t follow the strict guidelines, he may get fined and his account may be closed. Finally, not all trading types are permitted. For example, companies may prohibit risky activities, such as scalping.

Best Companies that Offer Funded Accounts

Here are some of the best prop trading firms:

• FTMO: This is one of the most reputable firms, it has well-made structured evaluations and very high profit-sharing.
• Topstep: This company focuses on futures trading. The funding process is relatively easy and transparent.
• MyForexFunds: This company is known for flexible evaluation procedures.
• The Funded Trader: This prop trading firm is famous for its variety of account sizes.
• Supertrade: This is a growing prop firm with innovative funding models and trader-friendly conditions. Different firms have different evaluation criteria, profit-sharing structures, and trading restrictions. Some firms require higher profit targets, and others focus more on trading consistency. The difference among profit splits in different companies is very high, it varies from 50 to 90%. Some companies impose very strict rules, and others are more loyal. This is why, if you are selecting a prop trading company, check all details.

Conclusion

A funded account is a very good opportunity for traders who want to earn without risking their money. But it requires discipline and an ability to follow rules. Funded accounts are perfect for new and skilled traders, but it is important to choose a prop trading firm very carefully.