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What is a Funded Account in Trading?

November 9, 2022Back to Basics7 min read

There is a new buzzword firing up the FX trading circles: funded accounts. ForexBros is willing to fund traders up to $200,000 – traders just need to pass the funded account challenge. Traders who profit consistently will take home up to 80% of the profits – and ForexBros will take the hit of any losses. Does this sound too good to be true?

We are joining a long line of prop trading firms scouting for excellent traders for partnership opportunities. What are funded trading accounts? Find out exactly how these funded accounts work and how to increase your profit possibilities.

What are Funded Trading Accounts?

Funded accounts are ways for traders to access instant capital. Traders can use funded accounts to increase their trading positions and unlock higher potential profits. Applicant traders hoping to source funding have to pass a challenge (generally in a demo or virtual account) before they can start trading the live market. There is an entry fee for applicant traders, which can be refunded to those who pass the challenge. Traders who hit the trading targets and earn consistent profits can begin trading with full leverage and zero risk. In a nutshell, funded accounts offer high-hitting traders the chance to trade with unprecedented leverage. The prop firm takes all the risk, and the trader keeps the majority of the profits.

There is a boon in popularity for funded trading accounts, with challenges being offered by FX brokers across the board. These funded accounts are not to be confused with traditional prop firms. The latter operate on a more formal employer/employee basis with their traders and require in-situ trading and pay a base salary. Nor are funded accounts the same as a depository prop firm (aka first loss or broker-dealer). Depository prop firms typically charge spot fees for desk access, and the trading risk falls on the trader. The firm tends to seek revenue through high transaction fees, expensive training courses, and charges for access to professional trading software.

We are essentially seeking excellence among the applicant traders, a bit like a scouting firm. Traders can choose between a series of challenges with different entry fees and profit targets. All the risk is in the one-time fee, the majority of all profits from the moment they enter a live market goes straight to the trader’s pocket.


Pros and Cons of Prop Trading Firms

There is some skepticism surrounding the legitimacy of prop trading firms. Some traders claim funded trading accounts are a scam and that the firm’s primary source of revenue is the entry fees from traders failing the challenge. While the latter may be true – most traders do not hit the profit targets in the challenge – the truth is that prop trading firms want traders to succeed. After all, the profits are shared, so the better the trader’s chances in the market, the better the success of the prop firm. FX trading accounts may seem suspiciously lucrative, but at the end of the day, the opportunity is a win-win scenario for profitable traders and broker platforms.

Nonetheless, every trading avenue has its pros and cons, and it is certainly worth testing the waters and truly understanding any financial venture before putting your time and money on the line. For this reason, we have assessed the advantages and disadvantages of funded trading accounts so you can “try before you buy.”


Advantages of Funded Trading Accounts

We have outlined many of the benefits of being funded by a prop firm, but here is a concise list summarizing the perks of this source of trading capital.

  1. Instant liquidity: Prop trading firms grant leverage most traders could only dream of before. An account funded by a prop firm (with risk-free money) allows traders enormous purchasing power. The increased capital means traders can take more significant risks, open larger positions, apply more complex strategies and take home much higher profits.
  2. Low risk: One of the biggest advantages of trading with an FX-funded account is that you do not have to risk your own capital. The prop firm stakes their capital on the line, allowing you to trade without the fear of losing your own money. Because the prop firm will be assuming all the trading risks and losses, risk mitigation requirements are in place. This brings us to the next pro:
  3. Training: Prop firms invest in their traders through educational tools, training courses, and mentorship programs. The risk reduction techniques also help traders practice moderation in their approaches and teach them to be cautious when trading with their money down the line.
  4. Access to powerful platforms: Traders operating outside of funded schemes may find significant fees associated with trading. Some charting software programs charge hundreds or even thousands of dollars to use, and many of the best technical trading tools are locked behind paywalls. Another clear boon of using a funded account is that the prop firm pays any related costs, and traders can freely access premium versions of professional tools and trading software.

Disadvantages of Funded Trading Accounts

This article should not be read as pushing any trader towards prop firms. After all, any trading carries a certain amount of personal risk, and funded accounts are no exception. Before entering any new financial venture, traders should be aware of the potential downsides and any rewards. Here are some of the flaws within prop trading firms:

  1. Restrictive trading: When you are a “lone wolf” trader, you may have to pay more access fees and stake your savings on the line, but you are your own boss, and you can trade in any style you want. When using a funded trading account, the prop firm makes the rules. These differ depending on the firm, but many have strict rules (no overnight or weekend positions, restrictions on news trading.) Moreover, there are stringent profit targets to hit (alongside maximum losses allowed). If you drop the trading ball and encounter excessive losses, the prop firm will discontinue your funding. Which is fair enough, considering they are taking the hit!
  2. High pressure: Again, you are trading with someone else’s capital. This means they will set the rules, targets, and time limits. Funded accounts may be too stressful for traders who dislike working within a routine or who cannot handle the pressure of meeting trading deadlines. On the flip side, if traders tend to stick to their strategy (we highly recommend always using a trading plan), then the requirements laid out by prop firms should not be a problem.
  3. Asset limitations: Most prop firms offer a wide range of financial instruments (FX, digital currencies, stocks, commodities, etc.) You will not find a prop firm that will fund you to trade whatever you like across many different financial markets. There will be inevitable limitations depending on the prop firm you choose, and for some traders, the “free” money is not worth it.


The ForexBros Funded Challenge

Prove you’re a profitable trader and get up to $200,000 under management

Traders choose their starting balance ($25k, $50k, $100k, or $200k). The parameters are the same for each option: traders have to hit a profit target of 10% in 30 days. The maximum daily loss is 5%, while the maximum overall loss is 12%. At this stage of the funded account challenge, traders can access leverage of 1:100.

With ForexBros you trade with the best in the biz! Sign up today and get funded with the pros.