How to become a funded Trader | Your best options explained!

In this post I’ll outline some of the ways to get funding and how to become a funded trader!

If you have proven to yourself that you can trade and manage risk profitably but don’t have the funds to support trading larger positions, then a funded trading account is a really great option. It’s actually really easy to get funded to trade on the proviso that you can trade and manage risk successfully on a consistent basis. There are a number of options available for traders looking for funding.

Table of Contents

  1. What is a Funded Trader?
  2. How Do Funded Traders Make Money?
  3. How to Become a Funded Trader?
  4. How to Choose the Right Funding for your needs?
    1. Trading for Private Investors
    2. Trading for In-house Prop Firms
    3. Trading for Online Proprietary Trading Firms
  5. How to Get a Funded Trading Account
  6. How to Pass a Trading Fund Evaluation Program
  7. Is it Hard to Become a Funded Trader?
  8. What are the Advantages of Being a Funded Trader?
  9. What are the Disadvantages of Being a Funded Trader?

What is a Funded Trader?

In a nutshell, a funded trader trades on behalf of a third party or company by trading their capital instead of his or her money. The third parties or companies that engage in this trading could include in-house prop firms, private investors, and online proprietary trading firms like Topstep Trader.

The table below provides a quick summary of the things you might want to consider is your interested in seeking third party funds to trade:

Retail TradersFunded Traders
Trade personal money which could be limited to one’s personal buying powerTrade a third party’s money offers much larger buying power
Have limited capital which means limited profitsHave access to a large capital which means potential for higher profits
Personal investment comes with emotional investment and personal riskNo personal money is on the line. Reduced emotional attachment and burden
Rely on personal trading systemsIn house prop firm’s have a wealth of knowledge and experience to lean on. On line proprietary trading companies typically have strict sets of rules to manage their risk.
Trade at own discretionMust remain consistent and profitable to retain funding

How Do Funded Traders Make Money?

Investors are looking for a return on their money. Whether that be private investors via an investment firm or a proprietary trading firm. Investors more and more are seeing the real opportunities available to invest with active traders and in particular talented retail traders.

The principle idea is – Investors supply funding to active traders either via an investment firm or in the form of a proprietary trading firm. Any profit that is made from trading these funds is split between parties. This is known as a profit split and are normally 50/50, 80/20, and sometimes 100 percent up to set profit amounts. Of course this splits vary significantly and are even negotiable depending on the funding arrangement.

A very popular and the most straightforward method for seeking funding is via an on line proprietary trading firm like Topstep Trading. Anyone can apply for a funded account with Topstep. Applicants are required to complete a two step trading evaluation that shows they can trade and manage risk successfully.

Topstep, offers traders 100% of the profit shares up to $5,000. Over $5,000, 80% of the profits are retained by the trader and 20% by Topstep. 

Traders seeking funding can trade almost any market. Stocks, options, treasury bills, futures and forex.

It’s also worth keeping in mind that to maintain funding a trader needs to remain consistent and profitable. Investors expect a return on investment and proprietary trading firms also need to manage downside risk and have specific profit targets, max position sizes, daily and weekly loss limits, and maximum drawdowns.

If your interested in applying for a Topstep Trader funded trading account. Click the links below to get 20% off your first Forex or Futures trading combine evaluation. To find out more about the evaluation process to get funding check out the ‘How to Get a Funded Trading Account’ section below.

How to Become a Funded Trader?

The first thing I’ll mention about becoming a funded trader is you first need to have the skills to trade and manage risk successfully. Before even contemplating seeking funding you should prove this to yourself first! This is going to save you a load of disappointment, time and money.

If you can trade and manage risk successfully there are a load of options available. The path you take to seek funding will mostly depend on your objectives.

In the following sections I have outlined some of the funding options available plus explain in detail how to apply for funding via an online proprietary trading firm. Probably the best option for traders looking for their first funded account and don’t have the ability to make a fully time commitment to an inhouse trading firm.

How to Choose the Right Funding for your needs?

In this section I’ve broken down what I consider to be the 3 main types of funding available to retail traders. Very broadly I’ve categorized these as Private investors, In house Proprietary trading firms and online proprietary trading firms.

Trading for Private Investors

If your already a successful trader that’s been trading your own funds or someone elses successfully then seeking out funding from an investor is a real option. This type of arrangement allows you to negotiate your terms and profit splits. This is a nice option for those seeking the greatest flexibility.

To get funding of this type your likely need some type of public profile via linkedin, tweeter or similar to attract or reach out to potential investors. Also Keep in mind that any agreement and contract made with this type of arrangement needs to be water tight to protect all involved.

This type of arrangement is more complicated than the other options. So if you have limited experience but can still trade successfully then one of the other option below is probably a better option.

Trading for In-house Prop Firms

If you’re prepared to commit full time to your trading, like the idea of surround yourself with successful traders and potentially willing to learn and adapt to new trading style then consider an in house Proprietary trading firm.

Often referred to as ‘Prop firms’ these are fully immersive trading environments that train and fund traders inhouse typically using the firms own trading methods and strategies. At least until a trader can demonstrate they can profit.

The biggest advantage of these type of companies is they provide comprehensive training, evaluation and feedback. You also get to bounce ideas off other already successful traders.

This is definitely the most demanding option. Companies require a significant time commitment for training and development. You’ll need to be able support yourself financially until your profitable. Typically these firms don’t pay a salary only a profit split.

An example of one of the more famous Prop firms is SMB capital a New York based Prop firm that day trades stocks. But there are plenty of Prop firm options available if this is something your interested in.

Trading for Online Proprietary Trading Firms

An option available to traders in recent times is trading for an online Proprietary trading firm. These companies operate in principle in a similar way to ‘In-house Prop firms’ except without significant time commitment but also without the immersive training environment.

This is a much more flexible option for those that want to trade around their day job, want to trade their own strategy or want to trade on the road!

This type of funding option is a great option for those starting out trading other peoples money, anyone that’s successful trading a small account and wants to take the next step or simply like the flexibility offered by this type of arrangement.

The biggest downsides to this type of funding is that most have strict trading rules to limit downside risk, all have some type of evaluation fee to qualify for an account and to date almost all are available for trading Forex and Futures only.

There are several online prop firm funding options available today. A great option for most traders in Topstep Trader. They offer access to funded accounts for both Forex and Futures traders. I’ve listed below some of the standout features offered by TST.

  • Products include forex and futures trading accounts
  • Enjoy an 80/20 profit split (with 100% profit for the first $5,000 withdrawal)
  • With 2-step Trading Combine as the evaluation stage
  • Free trial is available for Futures Trading
  • Up to $500,000 buying power available
  • Group coaching and digital coaching are available

How to Get a Funded Trading Account

The easiest option for most retail traders is getting funding via an online proprietary trading company. They offer a simple and flexible solution for traders looking for funding. In the remainder of this post I’ll discuss option in more detail.

To get funding with Topstep Trader the general process includes:

  1. Sign up to a specific funded account Forex or Futures and select the size of the account your want to qualify for.
  2. Pay a monthly subscription fee.
  3. Start and pass the evaluation process (I’ll discuss this below)
  4. Earning your funded account
  5. Profit and maintaining funding

How to Pass a Trading Fund Evaluation Program

Any evaluation program have their own rules for you to follow. This generally includes targets, risk management, instruments to be used, limits and losses allowable, retakes or resets, etc. These rules can also vary depending on the subscription of your choice.

Let’s take Topstep Futures Trading as an example.

When you sign up for a funded account with Topstep Trader you’ll be given the option to select the account size you want to qualify for. Each account has a progressively higher month fee depending on the account size.

Funded trader account options

In this example let’s select $50,000 buying power.

There are two steps in the evaluation.

Step 1. You need to prove you can profit. In that case, you’ll need a profit target of $3,000, using 5 contracts as a maximum position size, you can’t hit or exceed $1,000 daily loss limit, and can’t hit or exceed $1,000 weekly loss limit. Once you hit your profit target of $3000 you progress to step 2…

Step 2. You need to prove you can manage risk. The rules from step 1 apply with two additional rules: Weekly loss limit of $1000 and a trailing maximum drawdown of $2,000 per trading day.

These parameters in summary are:

TARGETS

  • Step 1
    • Meet the profit target in 5 days minimum (does not have to be consecutive days)
  • Step 2
    • Meet the profit target with no minimum number of days
    • Best day below 40% of all profits made

RULES

  • Step 1
    • Do not hit nor exceed the Daily Loss Limit
    • Do not allow the account balance to hit or exceed the Trailing Maximum Drawdown.
  • Step 2
    • Do not hit nor exceed the Daily Loss Limit
    • Do not allow the account balance to hit or exceed the Trailing Maximum Drawdown.
    • Do not hit nor exceed the Weekly Loss Limit
    • Don’t hold positions in major economic releases
    • Follow the scaling plan

After passing Step 2 you’ll earn your funded account, you’ll have the option to choose from a Pro Account or a Live Account.

Is it Hard to Become a Funded Trader?

To become a funded trader, you must have the necessary skills to profit and manage risks. 

If you have a proven trading strategy that has been profitable with a small account, the answer to the question ‘Is it hard to become a funded trader’ should be NO.

If, on the other hand, you’re still learning your trade and have yet to prove to YOURSELF that your trading strategy works, then you’ll likely struggle to qualify for funding. Even if you do manage to qualify, you’ll likely struggle to maintain funding.

What are the Advantages of Being a Funded Trader?

Becoming a funded trader comes with multiple benefits:

  • Scale Profits. If you’re making small profits with a small account, having access to more funds and the ability to trade larger positions will scale these gains into potential large profits.
  • Flexibility. As a funded trader with Topstep Trading, you can trade anytime, anywhere. 
  • Fewer Risks. Trading someone else’s capital comes with a reduced psychological burden. Trading large positions is one of the most challenging aspects of trading for almost all traders.

What are the Disadvantages of Being a Funded Trader?

There are several disadvantages to becoming a funded trader that should be mentioned:

  • You don’t keep 100% of the profits. The proprietary trading company business model is founded in a percentage profit split. In other words, you share any profits with the funding company. Theoretically, if you can trade, manage risk and the psychological challenges of trading at the size, once you have enough of your capital, your goal should be to trade your funds and keep all the profits.
  • Work on assigned trading platforms. Funded trader services have specific trading platforms to use. You may not be able to trade using a platform you’re familiar with and need to learn an alternative.
  • Consistent results are required. Companies funding your account want to see results. If you fail to meet profit targets or break trading rules, you lose access to the account.

If your interested in applying for a Topstep Trader funded trading account. Click the links below to get 20% off your first Forex or Futures trading combine evaluation.

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Ben

Welcome to TradaMaker, a site dedicated to all things trading. This blog is designed for those who share a love of trading. My goal is to provide a valuable resource that shares my insights into the retail trading world.

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