Traders who are considering applying for funding to help them trade in financial markets will have to learn a lot about the industry before they take the leap.
One of the first things to do is find out about prop firms, which provide capital for trading funds and gain a percentage of the profits in return.
What are prop firms?
Prop firms allow individuals to trade with much larger sums of money, which is likely to lead to bigger financial wins. Without this cash, traders are limited with the markets they can invest in and, therefore, the gains they make are restricted too.
Prop firms can also provide trading software and resources that traders might not have access to otherwise, though what they offer, which may include mentorship or training, will vary from one company to another.
This is why many individuals choose to trade with a prop firm, as they will gain access to capital, expertise and tools they would, otherwise, not be able to reach.
They can also benefit from the firm’s risk management teams, which is great for beginners who need support understanding how to manage their risk. It is also useful for experienced traders, as risk management is a complex and challenging area.
How to find a good fit for a prop firm?
There are many prop firms these days, so it is important to consider what you are looking for when choosing one that will suit you best.
Find out how much capital you can expect to gain, what resources they are offering, what technology they have, their support and mentorship, and what their application process is like.
Forbes recommends: “You should look for a business that shares your investing goals and objectives.”
It also suggests finding a company with an “excellent reputation and track record”, while also having good customer service. Providing a user-friendly trading platform is also important.
“By keeping these factors in mind, you can be sure that you’ll be making the best possible choice for your trading career,” the article adds.
Applying for trade funding
When you have found the ideal prop firm, traders will need to start the application process for the funded account.
They typically qualify by showing their skills in trading and risk management through an evaluation assessment.
This allows prop firms to determine how skillful traders are in the markets, so they can reduce the risk of offering them finance.
What is the one-step evaluation process?
The good news about some prop firms is they offer a one-step evaluation process. This streamlined procedure is considerably quicker than other forms of application.
At the same time, it is more efficient, as it enables prop firms to find out whether the traders are talented and, subsequently, worth providing with money.
Those who are not adept at trading will not pass the evaluation procedure, and not receive funding, as the prop firms do not want to unnecessarily risk their finances.
However, traders who are able to show they are capable of meeting their profit targets will be looked upon more favourably.
If they are able to meet all the specified targets, they will then be given a fully funded trading account.
How does the one-step evaluation process work?
Traders can prove their ability by meeting evaluation objectives with a demo account they are allowed to start trading with.
For Trading Funds, this includes achieving a ten per cent profit target, six per cent max drawdown, and no daily drawdown.
There are no minimum or maximum trading days, as long as the goals are met.
Traders can access their demo accounts as soon as they fill out the sign-up forms. Once they have done this, they gain entry to the trader’s dashboard.
They will also access Trading Funds benefits, including clear trading rules, streamlined pay-out methods, and a rapid scaling plan.
Once a trader meets the requirements, they will be granted a funded trading account with real capital, with which they can start using straight away.
What happens after the evaluation process?
After being given a fully funded trading account, traders can request their first pay-out at any time.
Following this, they will receive bi-weekly pay-outs, after which they can qualify for a refund on their joining fee. This means it has cost them nothing to give prop firm funding a go.
Like with the demo account, they will have a ten per cent profit target, which they can scale up. If the profit target is reached, the prop firm could increase the funding, helping traders play with larger sums and earn bigger profits.
The amount of money they can receive will depend on their performance and risk management. Finance varies from between $25,000 (£19,130) and $2 million, with those at the beginning of their career receiving the latter, compared with more experienced traders.
Therefore, based on a ten per cent profit target, those who are given $25,000 and achieve a profit target of $2,500 will be given more funding. This will continue up to the $2 million cap.
As there are no time pressure restrictions, traders can increase their market activities with ease.
Traders will receive their share of profits every fortnight, which means they will never have to wait long to receive their profit.
This also helps them manage their cash flow and enables them to reinvest in the market with their available cash. There is also a six per cent max drawdown.
Choosing which evaluation program is ideal for you will depend on how much money you trade with.
For instance, the ten per cent profit target for $25,000 will come with a $199 refundable registration fee, scaling up to $250,000.
Traders with $50,000 need to hit a profit of $5,000, with a max scaling of $500,000 and a refundable registration fee of $349.
A $100,000 evaluation funding has a $10,000 target, a max scaling figure of $1 million, and a registration charge of $649.
Finally, a $200,000 fund has a profit goal of $20,000, with max scaling of $2 million and an application cost of $1,199.
How to manage funded accounts?
To ensure trader success, the funding account should come with an easy-to-understand dashboard.
This should be designed in a way to help traders monitor their balance and track their performance.
The online tool should also offer real-time market data so traders can make informed decisions. Analysis of the market is also useful, as this enables them to better understand any fluctuations in the market, so they can act accordingly.
Staying safe with a prop firm
One of the advantages of working with a prop firm in the foreign exchange market is it provides more security for the trader.
As individuals are not having to use their own money, they do not have their own cash to lose. Of course, traders should still be careful with their actions, otherwise they would not pass the evaluation process.
However, they might be inclined to take bigger risks, as they are, in effect, gambling with someone else’s money. This will lead to bigger profits and larger rewards in the long-run, both for themselves and the prop firm.
To provide more security, it is important for traders to take precautions before committing to anything.
For instance, they need to read the terms and conditions thoroughly and make sure they understand the agreement.
If there is anything they are unsure of, it is worth getting in touch with the prop firm to provide clarity. This will be better for both themselves and the company in the long-run, as the prop firm does not want a trader that is not fully on board.
Although there are no guarantees when it comes to trading, whether they are using their own money or a prop firm’s, this is one of the safest ways to establish themselves as a trader and gain experience dealing with fast-paced foreign exchange markets.
Therefore, having already accepted there will be a risk associated with whatever way they choose to trade, this is perhaps the least riskiest method for traders to pursue.
Additionally, it is important to get familiar with the risks of trading, even if they are using someone else’s money. Make sure to understand what it fully entails and how to mitigate risks as much as possible.
This will help traders become the best they can be, and ultimately, enable them to scale up their finance in the future, which will give both them and the prop firm as much profit as possible out of their trades.
If you want to find out more about trading funds, how prop firms can help you, and what the one-step evaluation process is, give us a call today and our experts will be more than happy to explain the procedure to you.