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The truth about trader funding programmes that you probably know before now. If you have been trading for a while now, you are most likely to encounter companies, that are looking for successful traders whom they provide trading capital up to $100.000 or something like that.
The companies will offer you a generous profit share of about 70% for the trader and that the company will cover any losses.
At first glance, that sounds very suspicious and scam-y.
Who in the right mind would give you $100.000 just like that? Then this company will tell you that it is actually not that easy.
Traders usually have to prove themselves first that they are in fact able to trade, show that they are profitable, demonstrate they can follow strict risk management rules. Depending on the provider of this service, you can trade almost everything such as Forex, Futures, Indices, Stocks, Commodities, Cryptos etc.
Now, this sounds like a broker ad. When you sign up for a trader funding programme, the first stage of the funding process will be showing your trading skills on simulated demo accounts. There you will have to follow rules given by the company such as, not lose this and that much, be profitable at least this and that many days or earn this and that much during the trading period.
These rules are not the easiest, but they are realistic and achievable, especially for good traders. Now, here is the point where your suspicion levels are reaching new highs. When you sign up for a trader funding programme, these evaluations come with a fee that is not the cheapest. You might pay anywhere between $100 – $1000 for a one-time fee or a monthly subscription.
Let us pause here…… Ok, so the funding procedure will look something like this: You pay the evaluation fee and you will then start trading on a demo account while the company observes your results.
If you manage to pass all requirements in the evaluation, you will then have the right to manage the company’s capital. The process is very simple and straight forward.
On the funded account, which you will gain access to after successful evaluation, the trader may start trading with real money and share profits with the company while the company covers all losses.
For the trader, life is good during this stage and in this scenario, the trader and the company are definitely trying to build a win-win relationship.
If the trader performs well, the company will profit. If the trader does poorly, the company will suffer losses. . . .
Let us see this business from a different angle, however, many people would say that such a business is a scam and that these companies are targeting losing traders who pay the fee. Considering the fact that most traders in the market are losing traders, there is a lot of money to be made with this business model.
In my opinion, the truth about such a business model is somewhere in the middle.
We are encountering the paradox of the company wanting you to succeed as a trader and at the same time the company is generating income from the fees.
Let me ask you this question. Is it a bad thing that a company is making income from the fees? As a trader, you should realize that every time you make a profit in the market, someone somewhere is losing money. That is the nature of trading, to begin with.
In order to make a profit, you have to take it from someone else. A winning trader will feed off of a losing trader. So believing that making money off of losing traders is bad makes you very delusional as a trader.
Another purpose of the fee is that the trader will take the evaluation more seriously. If the evaluation was for free, everyone would eventually pass.
The company also risks a decent amount of money, so it is only fair that the trader is risking a low fraction of that. In a poker tournament, you cannot win the price without buying in either.
In essence, losing traders in these evaluation programmes are indirectly financing winning traders.
The winning traders are the ones who get capital for trading and the fee is a way for the company to offset some risk if a trader does start losing on a real funded account.
It is a very smart and sophisticated way to transfer money from losing traders to winning traders. Then we have the winners in the markets. The winners receive a generous amount of capital for trading. Winners show consistent profits from month to month and they are the company’s second source of income. If the company sees a trader perform well, this company will gladly offer more trading capital or even copy the trader’s trades onto a larger account.
Now that we fully grasp how this business model works, we will analyse whether it is a good idea to join such a programme.
The first point is very obvious. If you have little or no experience in trading, you should not be joining. Do your own research on the company that you want to trade for. Do they have good reviews? Are their payouts reliable? How is their customer support? What are the trading conditions? What else do they offer besides a funding programme? Do they seem to care about their traders?
If you believe that a company is competent and trustworthy, here is the list of benefits if you are a winning trader:
• Trade a bigger account with which you can start making a living
• Don’t risk your own money anymore
• Psychological benefits when trading other people’s money.
In conclusion, if you are a winning trader and find a trustworthy company, I can certainly recommend the trader funding programme. A winning trader is someone the company will care a lot about as you generate profits for both parties. You will also always have someone who will supervise you which is also a benefit if you lack discipline from time to time.
Many prop traders prefer trading for their companies because they will always have a risk manager who makes sure that your risk management and psychology is in check.
If you are looking for this type of funding, I can highly recommend you to try FTMO.
They have very fair profit share and you can become funded trader for a one-time fee instead of a monthly subscription. Besides that, they offer a Trading psychologist for all of their clients which will help you keep your risk and mindset in the right place.
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