How forex funding helps boost earnings
There is a common belief that trading is one of the most lucrative activities. To validate this claim, let’s compare two approaches to defining income. We’ll view trading as a profession and contrast it with other jobs:
- A trader earns 8% profit per month. This figure is taken from the profitability range achieved by 95% of all profitable traders. Some earn as little as 2-3%, while others have 15% as their average over many years.
- An IT employee earns up to $7,000. This is also an average value, the exact amount is not critical for this comparison.
Note that profit is calculated differently. If an IT specialist has a fixed salary expressed in monetary terms (there might be bonuses and additional payments, but that doesn’t change the essence), then a trader’s income is measured in percentages. A trader usually commits a certain percentage of their capital to a trade. In trading, everything is in percentages – both trade sizes and price changes. So, a trader with a capital of $100,000 will earn even more than our IT specialist. And if their capital amounts to $500,000, they receive $40,000 in profit each month. In this case, trading undoubtedly wins out and appears more attractive.
But let’s look at this situation from the perspective of an ordinary trader with a capital of $1000. Their 8% income would amount to $80. Is that enough money to live without worries? Definitely not! It’s not advisable to start your journey in trading with a large sum, as many people need time to adapt to challenging conditions and understand the importance of money management. However, subsequently increasing one’s capital is the only chance to achieve a solid income. Here, many encounter an obstacle on their path, since the capital required for trading is hard to come by. Borrowed funds can be considered an unsuitable option because they require interest payments, and there is always a risk of losing your capital and ending up in debt. In the past, traders had to patiently build up their deposits over the years, sometimes taking up to 10 years. But with the advent of forex funding programs, everything changed.
Prop firms are companies whose main goal is to attract traders with a proven track record. You’ve probably heard of investment funds that invest money in various assets. Now, imagine that a prop firm does the very same thing, except that it invests in traders. How does it work? Let’s look at the entire process step by step:
- The company offers you the opportunity to use its money. It attracts a number of traders.
- Traders demonstrate that they can use capital cautiously while still generating income.
- The company presents a contract for the trader’s review. If everything suits them, they sign the agreement and begin trading using the company’s money.
- The profit earned can be withdrawn. The company takes 10-50% of what the trader earns.
This is how funded trading works. The key element in this entire chain is the proof of skills. Look at it from the company’s perspective and try to imagine what skills you would want a trader to have. Obviously, you’d be interested in their profitability. Another important aspect of a trader’s expertise is trade control. Would you entrust your capital to a risky trader? Most likely not. So, how can you be sure that the trader before you is engaging in deliberate and systematic trading? That’s why the forex funding challenge was created. What is it, and why do companies implement such rules?
The challenge can be seen as a list of tasks that you must complete. The company will provide a funded trading account only after you have fulfilled all the tasks set before you. What does this include? In the most common variants, the list looks like this:
- Show that your trading system can generate profit. To do this, simply earn, for example, a 14% profit on the demo account provided by the company.
- Demonstrate risk management skills. During the challenge, monitor your losses and do not allow your account balance to drop below the level specified in the conditions. This level exists in two forms – a daily loss limit and one set for the entire duration of the challenge. For example, you might encounter limits of 5% and 11%.
- Show that you trade deliberately and make decisions based on analysis rather than at random. Trade in such a way that your profit target is spread over several days rather than achieved in a single trade. The threshold for a profitable day is often set at 0.5-1%, although the required number of such days varies from firm to firm.
The last point in the prop firm challenge often raises questions, so let’s break it down further. You are a trader with a trading system. You know patterns, can use indicators, or perhaps even trade by volume. No one is going to administer a theoretical exam to you – that wouldn’t make sense. One pattern works, another doesn’t, and you could argue endlessly. The best way to show that you’re not trading by chance is to demonstrate the consistency of your trading. That’s why companies include this condition in the challenge and do not consider it completed until all the trading tasks have been fulfilled. Did you hit the profit target for one trading day? Great, but keep trading and show as many profitable days as specified in the challenge conditions.
To obtain a funded account, you choose a challenge, pay the participation fee, and then complete the tasks. The fee is an integral part of prop trading. If the trials were free, all the top 10 prop firms would be flooded with applications from traders. It wouldn’t make sense – companies only want serious traders. Not ready to pay $40 to participate in the challenge? Then you’re not confident in yourself. The company bets on those who understand perfectly that they can handle the challenge.
The challenge itself is the foundation for forex funds later on. What does that mean? In the challenge you see all the conditions under which you will work further. This includes the account balance, your profit share, and even the leverage that will be offered to you. Also, the loss limits will remain. On the funded account they will be the same. You can find all these conditions in the challenge description. They also affect its cost, which is quite logical. The higher the cost, the better the conditions will be. You will receive a larger amount of funds on your funded account, a larger profit share, and other advantages. The most expensive challenges available today cost up to $1500-2000. But in this case you can count on forex funds in the amount of up to $500 000 and maximum payouts of up to 95% of the profit. There is also a division of challenges by the number of stages:
- One stage. You are given tasks, and you complete them.
- Two stages. After you complete the tasks, the company conducts a second stage, also with specific tasks. Only after completing the second stage does the trader receive a funded account.
- Three or more stages. There are only a few such offers in the industry. Sometimes three stages can be found in various promo actions for accounts with special conditions.
Pay attention to one parameter in the challenge description. As a rule, the tasks for the second stage are much easier than those for the first. For example, the loss limit remains the same, but the profit target is halved. Also, note that two-stage programs are usually a little cheaper than one-stage programs with similar conditions.
Terms of cooperation with the forex funding firm
Having dealt with the technical side of forex funds, let's move on to the most important thing. Why is prop trading so popular that crypto funded accounts have even appeared? It is all due to one important condition, which made prop trading so attractive. If a trader proves that they trades profitably and manages risks, the company is ready to provide a sufficiently large amount of capital. In some cases, we are even talking about millions of dollars. But in our description we only spoke about successful scenarios, whereas anything can happen in the market and the trader will incur losses. If this happens during the challenge and the drawdown condition is violated, then the trader simply loses their account. They ends their participation in the challenge, but can start again – simply by buying another one or by taking advantage of a promo action and resetting the challenge for free. Such actions are also sometimes conducted.
But what if, on their funded account with a volume of $400 000, a trader incurs a loss of $25 000 by violating the daily limit? The loss is quite substantial in monetary terms. Here we come to the most important principle of proprietary trading – a trader bears no responsibility for the capital.
You earned $100 000 and want to take your share? According to the company's regulations, you do this within the specified time frames, for example, once a week. Lost $100 000 on your funded account? You owe nothing to anyone, this is one of the points of the agreement. Everything is done officially. The account may be closed if the loss rules are violated. But you do not compensate for the losses. This is an excellent offer, and now you probably understand better why prop companies pay such close attention to traders’ skills and make the challenge paid. The profit is yours, the losses are the company's – that's how funding for forex traders works. That is why companies conduct such a selection of traders.
How to become a participant of forex funding program
If you are firmly determined to build a career as a prop trader, it is recommended that you devote time to studying all the features. They exist in every firm, but they do not require all your information at the initial stage. Each firm operates according to a simple algorithm – register, buy a challenge, complete it. Then, depending on the results, you may receive a funded account. Signing the contract implies that you will go through a verification procedure.
Overview of the features of forex funding programs
Sometimes prop firms work with the same narrow specialization as individual brokers. One company offers funded accounts in the crypto market, while others work with stocks. There are also futures prop trading firms, in which trading is conducted on futures contracts. But most often traders choose forex prop firms. Why are they popular? It is simple – you will trade in the same environment you are accustomed to. Let’s consider a typical example. A trader traded with a forex broker, using the Metatrader platform. They thoroughly studied the features of the forex market and became accustomed to the platform interface. If they switches to stocks with a stock broker, then they will have to get used to a new program as well as to the specifics of trading stocks. This is inconvenient, so forex traders usually go to trade with forex prop firms.
Some of these companies have taken the route of a universal list of assets, as major forex brokers do. Despite being oriented towards the forex market, such companies do not limit the trader to only currency pairs. They may provide access to trading stocks and indices, metals and oil. Even cryptocurrencies can be presented in the form of convenient CFD contracts. For those forex traders who are used to trading in this way, this will be an optimal choice. They do not need 1000 trading instruments of one category. They need the most popular trading instruments from all categories.
How to choose forex funding program
Most beginners focus on how much money they can get to work with and what they can trade. This is the right approach, but it is only suitable for forming a list of suitable prop firms. For example, you select for yourself 10 firms with good conditions. You can take them directly from a rating that was compiled based on the evaluation of more than a dozen parameters. After that, you should study the conditions that are usually not included in the list of the main ones. What are we talking about? In addition to the standard parameters, there are also those that may hinder you from achieving success.
These include the prohibition on rollover to the next trading day. Simply put, if you open a trade today, then you must also close it today. The company is oriented towards daily closing of results and wants to work only with scalpers. There is also an opposite situation, where a prop company declares the inadmissibility of executing short-term trades. Both the first and the second scenario can negate your trading results. Therefore, you need to read all the conditions, they are often placed in the section on trading conditions or FAQ. If there are any doubts, it is better to contact support. It is advisable that the specialist speaks your language, this will allow you to get the most accurate and reliable information.
Tips for beginners forex funding
In trading, as in any other profession, all beginner mistakes are well known. And if you managed to learn to trade profitably, that speaks of only one thing – you have succeeded in trading itself. But that does not mean that, when you start trading in a proprietary firm, there will be no difficulties. Prop trading has its own features, and it creates many difficulties that you are not even aware of.
We will start with such a common phenomenon as the desire to quickly pass the challenge. Do you remember how you recorded your first profit on your regular trading account? And then you wanted to earn more. Almost every trader goes through this. More often, the desire to earn faster leads at least to a significant loss, and sometimes to a complete loss of the deposit. In prop trading everything is much tougher – you have a very serious loss limit. Passing the challenge faster can only be achieved by increasing the volume of trades and, accordingly, the risk of losing your account. Always remember that you must not rush when completing the challenge under any circumstances, especially if forex funding program does not contain conditions regarding the time frames for completing the trading task.
The second important tip relates to risk management. Beginners often lose their account simply because they have not memorized a fixed drawdown level. Indeed, in regular trading you generally do not pay much attention to what size your stop loss will be – 1.1% or 1.3%. That is not so important, right? But in prop trading the stop loss is the basis of everything. If you want to work successfully and receive a stable income through forex funding, you must always accompany your trades with a pre-calculated stop loss. Also, do not forget to calculate all the losses and profits for the day in order to stay within the specified limits. Usually, forex trading prop firms provide complete statistics in the personal account. For example, in SpiceProp you see indicators in real time. You can see what the daily loss threshold set for today is and how much remains until it is reached. This is an excellent opportunity to control risks and not lose your account.
And, finally, we strongly recommend that you initially work with only one direction of forex fund. Do not try to complete several challenges at once, this only scatters your attention and increases the likelihood of making a mistake. Obtain one funded forex account, get used to this type of trading, and only after that move on to completing new challenges. It is better to have one larger account than several small ones. This will allow you to maintain concentration, and also, when choosing more expensive challenges, you receive a larger amount of capital for every $10 of challenge cost.