What are Funded Trade Accounts and How do They Work for Traders?

Funded trade accounts (FTAs) have become increasingly popular among traders in recent years. They offer traders the opportunity to access higher levels of capital and greater trading opportunities than they would have with a regular CFD trading account. But what are FTAs, and how do they work?

What are Funded Trade Accounts?

A FTA is an account that provides traders with a significant amount of capital to trade with. The account provider funds the account with a certain amount of capital, typically several thousand dollars or more, and the trader is allowed to use this capital to make trades. Funded accounts are typically offered by proprietary trading firms or trading schools, and they are designed to provide traders with a way to access higher levels of capital without risking their own money.

Funded trade accounts are structured in a way that allows traders to keep a percentage of their profits while only risking a small portion of their own funds. For example, a trader might be given $50,000 in capital to trade with, but they may only need to risk $2,000 of their own funds. The account provider takes on the risk of the remaining $48,000, and the trader is only responsible for a portion of the profits earned.

How do Funded Trade Accounts Work?

FTAs work by providing traders with access to capital that they can use to make trades. In order to qualify for a funded trade account, traders typically need to go through a rigorous verification process. This can involve submitting trading records, completing a trading evaluation, or meeting specific performance criteria. The verification process is designed to ensure that the trader has a solid trading strategy and can manage risk effectively.

Once a trader has been approved for a funded trade account, they are typically given specific performance goals to meet. For example, they may need to earn a certain amount of profits within a certain time period, or they may need to maintain a certain level of profitability over a longer period of time. If the trader is able to meet these performance goals, they are allowed to keep a portion of the profits earned, while the account provider takes a percentage of the profits as well.

Advantages:

1. Capital: Funded accounts provide traders with a significant amount of capital to trade with. This allows them to take larger positions and potentially earn more profits. In many cases, traders can access as much as $100,000 or more in capital, depending on the account provider.
2. No Risk: By using a funded trade account, traders do not risk their own money. This means that they can take more aggressive positions and potentially earn higher profits without worrying about losing their own funds. Funded accounts are often structured in a way that allows traders to keep a percentage of their profits while only risking a small portion of their own funds.
3. Professional Development: Funded accounts encourage traders to develop their skills and trading strategies. Traders are given specific performance goals to meet, which can help them improve their trading abilities. They are also typically provided with feedback and guidance from experienced traders or trading coaches, which can help them refine their approach and make better trading decisions.
4. Trading Opportunities: Funded trade accounts provide traders with access to markets and trading instruments that they may not have otherwise had access to. This can help them diversify their portfolio and potentially earn more profits. For example, a funded account might allow a trader to trade futures, options, or forex, whereas a regular CFD trading account might only provide access to stocks or ETFs.
5. Flexibility: Funded trade accounts are often more flexible than traditional trading accounts. Traders may be able to choose the type of account they want, the amount of capital they want to trade with, and the specific markets they want to trade in. Some account providers also offer different levels of funding, allowing traders to start with a smaller account and work their way up as they gain experience.

Disadvantages:

1. Limited Freedom: Funded trade accounts often come with strict rules and guidelines that traders must adhere to. This can limit their trading freedom and prevent them from taking certain positions or using specific strategies. For example, a funded account might prohibit short selling or limit the amount of leverage that a trader can use.
2. Profit Sharing: Funded trade accounts often require traders to share a portion of their profits with the account provider. This can reduce their overall earnings and limit their potential profits. The profit split can vary depending on the account provider and the specific terms of the agreement, but it is typically between 20% and 50% of the profits earned.
3. Pressure: Funded accounts can create pressure on traders to perform well and meet their performance goals. This can be stressful and may lead to emotional trading decisions. Traders may feel like they are constantly being monitored, which can make it difficult to stick to their trading plan or make rational decisions.
4. Fees: Funded trade accounts often come with fees that traders must pay. These fees can reduce their overall profitability and increase their trading costs. For example, traders may need to pay a monthly subscription fee, an account maintenance fee, or a fee for each trade that they make. These fees can add up quickly, especially if a trader is making a large number of trades.
5. Account Verification: In order to qualify for a funded trade account, traders typically need to go through a rigorous verification process. This can involve submitting trading records, completing a trading evaluation, or meeting specific performance criteria. This process can be time-consuming and may be a barrier to entry for some traders.

In conclusion, funded trade accounts can be a great option for traders who are looking to access higher levels of capital and diversify their portfolios. However, they do come with some disadvantages, including limited freedom, profit sharing, pressure, fees, and a rigorous verification process. Before deciding whether to use a funded trade account, traders should carefully weigh the advantages and disadvantages and determine whether it is the right choice for their trading needs