Funded trader programs are a fantastic way to leverage your trading skills by getting more money to trade. But many traders pay the money to take a challenge, not knowing that they actually have a very low probability of success.
So in this tutorial, I'll show you exactly what you can do to dramatically increase your odds of passing a funded trader challenge on the first try.
The first step to passing a funded trader challenge is to know the specific criteria that needs to be met to pass the challenge. Next, traders must be able to meet or exceed that criteria in demo or simulation trading multiple times, before attempting a challenge.
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To get more details, keep reading.
How Funded Trader Programs Work
If you're new to proprietary (prop) trading firms, then I'll give you a quick summary of how they work.
These firms have money that they want to invest. Their money could come from the founding team, or other investors.
They invest in independent traders like you and me, and take a cut of the profits that the traders make.
Independent traders benefit by getting more money to trade, thereby increasing the amount of money they can make every month.
So if a trader makes 8% per month consistently, that really doesn't help if she only has a $5,000 account.
She will only make $400 per month. Not enough to pay more than a couple of bills.
However, if the trader has a $100,000 account, then $8,000 per month is usually enough to live on…at least in most places in the world.
Again, the prop firm takes a cut of the trader's monthly profits and benefits from a fairly passive income stream.
Now that you understand the basics, here's how to find the best funded trader program for you.
Pick ONE Trading Market
Most prop firms provide funded trader programs in one market. So the first step to becoming a funded trader is to figure out which market you want to trade.
This almost goes without saying, but you should already have a proven trading strategy in the market you want to get funded in.
Too many new traders expect to develop their strategy while taking the challenge. That's like trying to learn brain surgery while operating on a live person for the first time.
That will always, always, always end badly.
So have a proven strategy before you even consider paying for a challenge.
If you don't have a proven strategy yet, be sure to start with the backtesting process.
But if you're profitable in a few different markets, sit down and carefully consider which market you want to focus your time on…at least for the foreseeable future.
Also consider which market you have the best results in.
Are you a better Forex trader? Or maybe you get the best results in Futures.
If you jump between markets and funded trader challenges, you won't have the focus required to succeed.
So pick ONE market before moving on to the next step.
Research Different Funded Trader Programs
Once you pick a target market, now it's time to look at all of the available funded trader programs out there for that market.
Prop firms come and go.
So any prop firms I attempt to list here may not represent the best ones that are currently available. That's why it's important to take some time and do your own research.
There are a few things that you can do to find the ideal program for you.
First, start off with a few simple Google searches. For example, if you want to trade Forex, you can use search terms like:
- “Forex funded trader program”
- “Forex prop firm”
- “get funded as a Forex trader”
Simply replace “Forex” with the market you want to trade.
But don't limit yourself to just the search terms above. Research forums and other online groups that can help you find the best programs available for your target market.
The added benefit of online communities is that you can get some feedback from people who are actually in these funded trader programs.
You can also take a look at some of the programs I've researched.
Keep a spreadsheet record of potential programs so you can compare all of the elements listed below.
Understand the Qualification Details
Now that you have a few programs on your list, it's time to dig into the details of each program.
Part of the process of choosing the right program is understanding what it takes to pass a challenge and stay in the program.
The qualification criteria can vary widely by prop firm, so be sure to understand all of the details before getting involved.
Here are the things to look out for.
Profit and Loss Parameters
The most important thing to look at is the required performance metrics for the funded trader program.
Pay attention to:
- How much profit do you have to make to pass the challenge?
- What is the maximum realized drawdown?
- What is the maximum unrealized drawdown?
- Maximum daily loss?
Make sure your current trading strategy fits into these parameters. If it doesn't, then you may still be able to use that strategy.
You can possibly take less risk per trade or change your entry parameters.
If you cannot get your strategy to fit those metrics, then consider looking for another program or creating a new trading strategy.
Holding Positions Over the Weekend
Does the program allow you to hold trading positions over the weekend?
One of the biggest problems I used to have with funded trader programs was that all of them required you to close out your positions on Friday.
This is fine for day traders, but if you're not a day trader, there's no way that you can get funded.
But more and more programs are allowing traders to hold positions over the weekend. So if you do hold your positions over the weekend, there are options for you.
In some cases, you may have to pay a slightly higher fee for the challenge, but it's usually worthwhile.
Do your research and figure out if it makes sense to you.
Holding Positions During News Announcements
Same thing goes for news announcements.
If I had to close all of my positions every time there was a major news announcement, that would seriously mess up my trading strategies.
Luckily most prop firms don't require this anymore, but be sure to double check.
A lot of prop firms used to require that you pass a challenge in 1 month. If you didn't pass the challenge in that time period, then you failed.
I didn't think that was fair.
But I've recently seen more prop firms offering unlimited qualification periods, or very long ones, as long as the trader actively trades.
This makes a lot more sense and is more fair to the trader.
Lot Size Limits
A prop firm might limit the maximum trade size that you can trade.
In Forex, it might be 1 standard lot.
In the stock market it might be 500 shares.
Other prop firms may not have a maximum trade size limit.
Be sure to know if there is a limit and how it will impact your trading strategy.
Trader/Prop Firm Split
Another thing to consider is how much of your trading profits you get to keep after you pass the initial challenge.
Do you get to keep 60% of the profits every month?
This is an important thing to know, so do your research on this.
Some funded trader programs have more than 1 round of qualification. They do this to make sure that your first round wasn't just lucky and you really do know how to trade.
I'm not a fan of this, but I understand where the prop firms are coming from. They want to minimize their risk.
So I would look for a challenge that only has one qualification round. But if the benefits are worthwhile, you may want to try out for a challenge that has 2 rounds.
You'll have to make the call, depending on your situation.
The amount of leverage that you're allowed to use in your prop account can have a big impact on how you trade and how much money you can make with your trading strategy.
If you have a strategy that needs high leverage, then you should find a prop firm that allows it.
Otherwise, you may have to scale back your trading to make your strategy fit the prop firm's parameters.
Be sure to test any changes to your strategy before you take the challenge. If you tweak some of the settings, your strategy might not work as well as you expect.
Restrictions on Using Robots, Markets, Hedging and Scalping
Some prop firms may not allow you to trade with a robot/EA, hedge or scalp in their funded accounts.
So if you're planning to use these methods, be sure to check that they allow them before signing up.
There's nothing inherently wrong with these trading methods, but some prop firms may have their own reasons for not allowing them.
Also check to see if there are restrictions on the markets you trade. A Forex firm may not allow trading in exotic pairs. A stock trading firm may not allow you to trade penny stocks.
These markets are usually super risky and it makes sense that prop firms would have restrictions on them.
One Thing ALL Programs Don't Allow
Prop firms won't allow you to open 2 accounts and trade opposite positions in the 2 accounts.
If a trader did this, they could simply take a long trade in one account and a short trade in the other and wait for one of the accounts to hit the profit target.
This is obviously cheating and a waste of everyone's time.
So don't do it.
Relying on a trick like this will help you pass the qualification, but you cannot achieve any lasting success with this method.
You'll also probably be banned for life from that funded trader program.
Do Research on the Company and Founders
Also be sure to do some research on the founders of the prop firm or the company that owns it.
Find out how they get their funding, how long they have been around and what traders are saying about them.
Watch YouTube interviews and read blog posts.
You want to make sure that the company is reputable and has a good chance of being in business for a long time.
Because if the company goes out of business, you'll be out of business too.
Pass BEFORE You Pass
This is the most important step, so do not skip it.
Now that you've selected a funded trader program that you want to try out for, it's time to pass the challenge before you take the challenge.
You know the criteria that's needed to pass your chosen challenge, so practice passing the challenge in a demo and/or trading simulator account before you pay to take the challenge.
After you've been able to pass the challenge a few times, only then should you pull out your credit card and pay to take the challenge.
If you've followed the steps above, you'll have the best chance of passing the challenge and you'll have supreme confidence to take trades.
Meeting the challenge criteria before you even take the challenge will give you a lot of confidence and greatly increase your chance of success.
There are no guarantees that you'll pass a challenge on the first try.
But if you have prepared correctly, failing will likely be a matter of bad luck than a lack of skill. If you have followed the steps above and end up failing on your first try, simply try again.
Chances are very good that you'll pass the second time around.
Traders who take a challenge without a proven trading strategy and a deep understanding of the challenge criteria are just wasting their money.