NEWSDoes Becoming a Funded Trader Improve Your Finances and Lifestyle?
Oct. 27 2023, Published 3:28 a.m. ET
Since 2021, we have seen massive growth in funded trading programs, with more and more companies offering private investors to fund accounts they can trade with.
The growing number of services and advertisements caused more and more private households to begin researching this topic and get involved in funded trading. Google Trends indicates that the interest over time reached its current peak in the United States at the beginning of September 2023 but remains at a high level.
Analyzing the interest by sub-region indicates that funded trader programs are trendy in Florida, Georgia, Texas, Maryland and Arizona. That at first looks surprising because only Maryland has a median household income above the U.S.-wide average of $69,717. But by taking a closer look at the concept of firms offering funded programs, it makes more sense.
What Does Funded Trading Mean?
Funded trading means that a proprietary company assigns funds to a trader who takes responsibility for trading the firm's capital. In most cases, the funded traders do not have to bring in any private capital and get access to a funded account where they can trade assets such as futures contracts, forex pairs or stocks.
Who Is a Funded Program Designed For?
Funded programs are primarily designed for people who can't afford to fund a trading account with sufficient money to trade on their behalf. Active trading has significant entry hurdles because of various regulations. For example, day traders have to fund their account with at least $25,000 and maintain this minimum level to actively day trade.
In contrast, a funded trader program does not require any funding capital to be provided by the trader. Instead, the firm provides all capital the funded trader takes control of.
A trader has to prove knowledge and skills before gaining access to a funded account. That's either done by an in-depth interview with the firm or, in most cases, by taking a challenge.
Such a challenge is an evolution program, where the trader at first controls an account with virtual money. He then trades the assets and instruments of his choice in a simulated environment. If he then reaches the defined profit target without violating the defined rules, he gets funded.
Are There Any Risks and Rules To Know About?
No matter how good it sounds to gain control of a trading account funded by a firm, there are pitfalls you have to know about.
The trading challenges cost money: Firms require participants to pay a one-time participation fee or monthly recurring fee. This fee is smaller than the typical minimum amount needed to open a brokerage account, but it's a cost factor to consider.
There are various rules: Reaching a specific profit target is only one goal, but there are other rules, too. For instance, the maximum loss is defined for each challenge. If the capital during the challenges falls below the maximum loss level, the challenge fails.
Active trading inherent high risk: Funded trader offerings typically require active trading, with 30 or more trades to be placed and with a minimum of active trading days or minimum profitable days. Statistically, active trading is only a success for a minority of traders.
Does Becoming a Funded Trader Improve Finances?
Becoming a funded trader can improve finances, but there is no guarantee for it. Instead, it's hard work to become a successful trader, be it with a funded account or a classic brokerage account.
The participation fee is the biggest hurdle in the business case because those costs impact a balance negatively at first, and finances only improve if the participation fee can be made back and additional profits made.
From a realistic standpoint, it is unlikely for 99.99% of funded traders to achieve long-term financial independence with funded trading. Instead, the income can boost finances in the short term, but in the long term, the risk of failing during a challenge or when trading a funded account is high.
The core question is whether it is worth it to join a funded program or not, and the answer to this question primarily relies on your expertise and knowledge in the finance sector. As with any job, knowledge makes the difference, and it's hard work and a long path to become successful.
