When you find videos about trading on youtube you might encounter traders that are kind of bragging about how much money they make each trade. This can range into thousands of dollars per trade. While these trades might be very legit, they don’t always tell you the whole story. They are probably not trading with their own money. Many professional traders use funded accounts. Funded accounts are accounts from so called prop firms. These firms borrow you money you can trade with. This way traders can take on very large position sizes without losing their own money.
For example, FTMO is a company that borrows you money you can trade with. Before you can use their money, you have to go through a few steps:
- You need to pay a fee of €155 (2021) to start the process
- Step 1: FTMO challenge
- Step 2: Verification
- Step 3: FTMO trader
In the first step you have to prove you know what you are doing. You need to make 10% profit in 30 days of trading. You can lose a maximum of $1000 based on open and closed trades. In the second step you also have to complete trading objectives. Once you complete all objectives you become a FTMO trader and use the money of FTMO to trade. This does come with a price. You have to pay a commission and earn up to 90% profits of your trades.
Funding accounts are used by many professional day traders. That's why they can open very large positions because it’s not their own money. Although they can lose their trading account if they lose too much, they will not be charged for all the money that is lost. So basically it’s a low risk way of trading. So don’t be confused or hyped by all those traders making thousands of dollars each trade. They are very knowledgeable and are not trading with their own money.
[keypoint text=Key concepts:
- Pro traders use funded accounts and don’t trade their own money.
- You need to verify you know how to trade before you can get a funded account.]
Chapters: The Ultimate Day Trading Guide
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