Trading on the foreign exchange market (forex) can be a very lucrative move, as long as you know what you are doing.
Typically, traders gamble with more than they have, which can lead to extremely high profits. However, the downside is they can also suffer substantial losses.
The foreign exchange market trades around $5 million (£3.91 million) every single day, so there is definitely a lot of opportunity for those who understand the nuances and complexities of the sector.
What is Forex trade funding?
As there is such a high risk when it comes to forex trading, individuals are either reluctant to put all their money in or need more capital to benefit from high profits.
This is where forex trade funding comes in, enabling individual traders to work in foreign financial markets by receiving capital from other sources.
Forex funded accounts, therefore, mean traders can keep their own capital safe, as they gamble with money from forex brokers or proprietary trading firms.
The amount of capital they are given can range from a few thousand to tens of thousands of dollars, and this is only once an applicant has been approved for the account.
They typically have to abide by certain regulations, including the highest level of risk, the maximum amount they can trade, or whether they have to use particular risk management or trading strategies.
In spite of these restrictions, there are many benefits to having a forex funded account.
To find out what they are, read on.
Benefits of Forex traded accounts
- Do not need own capital
The most obvious advantage of using forex traded accounts is individuals do not have to use their own trading capital.
Therefore, their own assets are not at risk in the forex. At the same time, they can trade with a much higher capital if they are only beginners and do not have substantial funds yet.
By doing this, they have the potential to earn much bigger profits than if they had used their own money.
- Earn share of profits
While they might not be the sole beneficiary from their risk taking, as they did not risk their own money, they can still earn a share of the profits.
This provides the trader with motivation to choose wisely and perform well, as the more the funds earn, the more they will walk away with.
At the same time, the account providers will earn a percentage of the profit, which is why they continue offering capital for forex traded accounts.
- Gain a reputation
Another advantage of forex funding is you will boost your trading reputation. As you have to apply to get a funded account, this shows you have passed the test.
In the application, you will need to provide financial information about your own accounts, and may need to fill out a trading evaluation. Some funded accounts require traders to achieve a certain level of proficiency first.
- Earn a good salary
Once you have been successful in your application to get a forex funded account and have established a good reputation, you have the potential to earn a very good salary.
How much money you take home will depend on the profits you can make, which comes down to the amount of capital put down, and essentially, how skillful you are as a trader.
According to Admiral Markets, a forex trader salary in the US earns around $100,000 per year (£78,625) with $25,000 in commissions.
However, some salaries can supersede this, with the biggest wage reported at Citi Trader for $196,917.
In the UK, salary expectations are still good, with Glassdoor estimating the average wage of a forex trader in the capital being £65,621.
Like in any industry, salaries are dependent on levels of experience, and how many portfolios they manage, among other things.
It also depends where you work, with starter trader salaries varying between £20,896 in Bruntwood to £44,956 in London, according to Indeed’s figures.
Those at the top of their game who are senior traders can take home as much as $10 million per year. However, very few reach this level, and a high turnover of staff means there are not that many who are experienced enough for the job.
One of the things traders appreciate about funded forex accounts is they get paid on a monthly basis depending on market performance.
This provides more financial security and stability, instead of solely relying on big wins to make a profit, and therefore, be able to carry on trading.
When trading with your own money, losses or withdrawals will mean you are less able, or likely, to buy more. However, this is not the case when you are not trading with your own capital.
Do not need to hunt for clients
One reason why traders enjoy working with forex funded accounts is they do not have to worry about looking for clients, much like they would if they were a portfolio manager who needs to find capital to invest.
When you work with a forex trade fund, your focus is merely on managing the account, without needing to work with other clients at the same time.
Freedom for own trading strategy
This also means traders can enjoy the freedom of perfecting their trading strategy, without being distracted by other accounts.
Admirals advised: “There is no right or wrong way to trade, rather what is important is for you to determine the one that you will adopt.”
Having a strategy is a wise move, as it helps avoid emotional trading, which is what a lot of people fall victim to. Instead, they can retain focus and calm in difficult situations, which could end up saving hundreds of thousands of pounds.
By focusing on a strategy, you have reason and theory to fall back on, instead of acting on your impulsivity, which could cost dearly in the long-run.
Are there any disadvantages to consider?
As well as finding out about the benefits of forex funded accounts, it is important to consider any disadvantages too.
Forex Academy recognises the biggest risk to a trader is potentially having to pay back any losses to the funding provider.
In cases where the capital is substantial, this could be financially crippling for them.
Another thing to consider is they could be very restricted in how they trade, particularly with regards to the amount of risk they are allowed to take, and the types of trades they can pursue.
“[Traders] should also have a clear understanding of the risks involved and be prepared to manage their risk effectively,” the article went on to say.
However, weighing out risks is integral to their skillset, so they need to be able to determine whether getting involved in trade funded accounts is a risk they are willing, and able, to take, and whether it will be worth it.
It is also essential to consider their own levels of risk tolerance, as those who are able to manage the stress of high risk trades will, undoubtedly, gain a greater profit for their funded accounts, as well as a reputation for their self-assured attitude.
At the same time, they could lose more capital than if they played it safer, and could make a name for themselves for acting too impulsively and emotively.
Those who are successful might even be able to follow in the footsteps of one of the most famous forex traders of all times, Paul Tudor Jones.
He began his career in finance in the late ‘70s and really made a name for himself by taking advantage of the economic crash in October 1987.
Forbes now estimates his net worth to have reached an impressive $7.5 billion just over 35 years later. This puts the 68-year-old at number 299 on Forbes’ list of billionaires in 2023.
George Soros is also considered to be among the best forex traders and has even been given the title of the ‘man who broke the Bank of England’.
By short selling the British pound in 1992, he profited $1 billion, and managed to secure one of the well-known forex trades of all time.
The 96-year-old is now thought to be worth $6.7 billion, making him the 382nd richest person in the world today.
His greatest asset in the finance world was knowing his limitations, with the trader famously once saying: “I am only rich because I know when I’m wrong.”
This is an important lesson for all traders to learn – that they need to understand they are not infallible and their actions are powerful because they could always fail.
A successful trader, therefore, is not one that does not make mistakes, but one that is able to fix them quickly and minimise losses as much as possible.