Trader Funding Companies: Opportunity or Scam?
This one is a bit of a controversial topic for all our traders. If you day trade, and even now with swing trading too, then you probably have at least heard of using funding companies for capital to trade with, if you haven’t in fact used them yourselves. We’ve heard the debate on all sides of this method for trading and it’s our turn to weigh in on this discussion!
We certainly have heard from all the perspectives and considered it all ourselves quite intimately. Futures day trading is our niche in the trading arena and this system is widely discussed in our circles. To be clear, let’s start with some background and facts - what even is a funding company? So, trader funding companies, also known as prop firms, are basically institutions that will offer large account sizes to paying members to provide them with higher purchasing power and financial leverage to trade the more liquid trading instruments, such as futures or forex, without using your own individual account and personal funds. This enables traders to take more significant advantage of the markets than they might otherwise be able to do on their own. For example, there are trading platforms for retail traders that require $13,000 to trade one contract of the futures ES market. And while that is the higher end of platforms, it is not so far from the norm. With a $50,000 funded account through a funding company, you can trade up to 10 contracts at a time, so long as you follow their rules.
Essentially, they are the 3rd party entity that backs your trading executions. They provide the start up for your trading growth. And in return, they have fees. So, let’s break that down for a minute. To buy an evaluation account, you spend $30-$100 depending on the deals at the time and the firm you choose, as there are many options with slight variations among them. That gives you the ability to then trade that account with no more cost to you. It is an evaluation account however, so the wins there are not yours to keep. You have to win enough to show consistent profitability and that will earn you access to a performance account. Here is the next fee, and it is 3-4 times the cost of an eval account. But, once you earn and purchase this account, then every amount you earn is live profits for you to eventually withdraw. The trick of it is that you have to maintain a safety net with your trading by executing reasonable and sustainable trades. More on that in a minute.
On the profits side of this performance account level that you have reached - is it all for you? Well, to start, yes it is with many of them. They will generally take no cut off your first $10,000 - $25,000 worth of profit per account. But then, once you are truly consistent, they do receive a percentage of your profits, varying from 5% to 20% depending on the firm, so always keep that in mind. This fact did not surprise me. I mean, financial backers to any business get a cut. Think about a financier of a restaurant - he gets his percentage of the profits each month, because without his support, the restaurant might not be able to operate. Our business just happens to be trading.
More of the debate comes in when you really consider their rules and requirements of their traders. It’s all sunshine and roses when you just win every trade and reach payouts in quick order. But, that’s not generally the norm. So then, when you lose - who covers that loss? When you are trading with them in an eval account, your trading is executed with live market data, but in a paper money form. It is all simulation and so no one has to cover the losses, they were never truly funded anyways. But once you meet their metrics and earn a performance account, it is the funding company that does.
So, how do they protect their capital then? Well, that’s the trailing threshold. Say you are trading a 50k account with our funding company of choice, Apex Trader Funding. The trailing threshold with them is $2,500 for the 50k account size. This means that while you are working towards the profit target on that account to qualify for a performance account, or PA, you can only lose $2,500, less the transaction fees of every trade that you also pay, and still get to keep your account. So essentially you are trading with $2,500, not the full 50k. This rule makes risk management very critical. It is not sustainable to have an ability ever to trade with an unlimited risk level. And they, as the financier for your trading, do not allow it either. Some companies even have a daily loss max limit, for example $1000 to help keep you trading another day, but also limits you from potentially getting those losses back within the same day. If you do lose a full threshold, say the 2.5k, then the account “blows” or is exhausted as we like to term it, and you no longer have that particular account. From there, if you want to trade again, try again - you must purchase another account. If it was a PA, then you start the whole process over again with a new evaluation account. There are more rules, but these are the main ones. For those of you who trade these accounts, every company will have instructional videos with all the exact facts for them for you to study and do your own due diligence with, and we highly recommend that you do research this much more thoroughly before jumping in. Also, trading of any kind with any type of account is inherently risky and should only be done having received some quality trading education, practiced in simulation, and honed a trading edge.
So, what does this all look and feel like to the trader? When we started trading in 2021, funded trading companies were still quite new and we were not aware enough of them to consider it as an option. So, we started trading with a large and reputable platform with our own money as the start up funds. To make a long story short, we were baby traders with no real edge but a whole lot of excitement and were rapidly humbled by Miss Market and took some solid losses after our initial lucky wins. We just did not know enough to be risking our hard earned money and it was a harsh reality check.
Through this early learning phase, we did learn a tremendous amount and then progressed to learning a real trading edge. But, we also burned through several thousand dollars of our first accounts. That was rough. It hurts to get knocked down and continuously just keep trying. That grit and perseverance is something that not everyone has. And it is what had us not throwing in the towel, but pivoting and staying at it!
As our trading improved, we began hearing more and more about trader funding companies. We did my due diligence and selected Apex Trader Funding winter of 2022-2023. They are the company that we have the most personal experience with. The reason why we ended up going this route, instead of building back up our personal trading accounts is that we had been humbled too many times. When we had a losing tilt day where we couldn’t trade well for all the effort, that 1-2 thousand dollars that we lost was our personal money. After we switched to Apex, if we had a really crap trading day where our demons or insufficient skills for that market that day led to losses, we did not lose 1-2 thousand dollars. We lost $33 that we paid for that eval or $140 for a performance account and a week or two worth of work. Still an unpleasant lesson, but financially, you get the point. For us, as early to messy middle level traders, this was a serious benefit both to our psychology and to our personal finances! In this way, funding accounts are protective. You have skin in the game with them, but sustaining heavy losses when there are no 3rd party rules over you no longer happens.
“I similarly experienced losing thousands of my personal capital with various asset classes before making the transition to focusing on futures trading with funded accounts. Since then, this approach has kept me in the game as I’ve continued to learn, practice, and refine my trading edge. This is a solid pro to trading with prop firms.”
~ Kendra Nunez, Market Mama
We recently got some feedback from another trader who said he liked funded accounts because you do not have to risk your own capital, while getting your trading legs settled. He mentioned that another benefit was that once you got the hang of it, you can do the copy trading on multiple accounts. So it can be good for folks who know how to trade. Another pro is that a lot of these firms also offer community discord groups and helpful resources. As we have discussed in previous episodes, trading can be isolating, so having other traders to connect with can be a boost to your trading morale. Purchasing the right to earn a funded account through these firms can very much be looked at as an investment in your trading career as well as the initial years of market tuition that we all pay one way or another. In the best case scenario, funded accounts offer a limited downside (what you spent on the eval account, and or the performance account) with limitless potential to the upside, granted you can grow an account consistently without ever violating the rules. It’s a very lovely setup, but just like miss market it doesn’t go straight up to the target. There are many factors still at play and moving parts to be managed.
Sounds pretty great, right? Trade with someone else’s capital and only take a small fee as your financial loss if you manage your trading business poorly on a given day. So then why do funding companies get so much shade? What do the haters have to say about it? Well, I mean there are risks with this too. And, in a lot of ways, when your financial risk is mitigated in this way, where the company you signed with will forcibly cut you off and control your personal monetary losses automatically per their rules, it can cause a bit of a disconnect. Losses don’t cut as deep. You can become a bit complacent with your discipline. This can create habits around poor choices, loose risk management, and trading heavier size than you otherwise are really qualified to be messing with based on your skill level. It can take away the natural evolution of you as a trader. You feel the leveraging up less tensely, as it is given with the accounts you bought. In this way, utilizing a funded company to trade with can actually slow your progress to consistent profitability by creating room for poor habits to take root.
Another perspective on these accounts is the idea that “the house always wins.” So, this is really a fair point. Your funded company is always paid. No matter what their traders do. They get the start up fees for all the accounts directly given. It is literally like buying an item. You get chances to do your best work. And they get paid from your fees. And with early to middle traders often not yet having a consistently repeatable winning strategy, there are always account resets and fresh starts, sometimes even within the same trading day! It only takes 5 minutes to buy and then be trading a new account! So, if you are in a full trading trance (you guys know what I am talking about), then you can go through many accounts in even one day, and often this is not a green day with that type of energy at play. Oh, and the biggest part to this leverage - you can trade copy! This varies company to company as well, but you can link multiple accounts together so that every trade you execute is copied and simultaneously executed in up to 20 accounts at the same time. This can really earn you more money faster with the sweet trades on green days. A $500 win from one trade is a $5,000 win if you copied that to 10 accounts! But if you are having a struggle day, you can also potentially lose 20 accounts in one morning. Now, that is some quick and easy cash for the house, right?
There is no way around it, the funding companies will only get wealthier with this business model. The truth is in the numbers. Does that make them bad? Are they the drug dealers on the street corner that offer a five minute high and sell you a dream? And are those quick and easy accounts just cheap enough to have you swipe your credit card one more time and not really notice how fast the fees are truly adding up until your statement comes next month. Do the quick and effortless resets offer such slick dopamine hits that it becomes a vicious cycle? These are real questions that we all must consider seriously.
All of the funding companies are clear with their rules right out of the gate. But they won't stop you from purchasing yet another account. There is no smoke and mirrors. They don’t need to. We humans are often our own worst enemies. They offer sales and ease of access to their accounts. Their system has bugs from time to time but they work hard to keep it all running very smoothly. They want us trading! Much like the casinos keep the temperature extra cool and are designed to engage our senses. So does this all just make trading potentially even more addicting than it already can be? I mean, I can see how some people just say no. They chose brokers with lower margin requirements and took their time with small and stable leverage and grew their accounts independently. This is absolutely a method of becoming a profitable trader and was how it was always done for retail traders before the recent availability of trader funding companies.
At one point, Kendra took a break from funded accounts. She felt at that time that it was negativity affecting her trading and was the source of overcomplicating her process. It can be easy to get fixated on the profit goal, number of days required to pass, wanting to get trades on multiple accounts each day. Basically focusing on P&L accounts statuses more than just the act of trading and following your process every day. It can be tricky once you have accounts at different levels and you're trying to strategize how to trade based on the amount of threshold you have left or how close you are to passing an account. So she simplified, and went back to trading personal funds and built up some progress in micros, got confident enough to play full size, and long story short, lost it all in one day. Kendra couldn’t help but feel the sting of that and couldn’t blame it on the funded account, but her own lack of discipline. Also, she definitely had the thought of how that money would have lasted me a heck of a lot longer in eval purchases. Case in point, funded accounts or not, you have to respect a risk management system or you’re losing one way or another. Individual accounts you can trade that sucker into the ground on any given day very quickly. Funded accounts offer a built in risk management, but only if you develop and honor your own system in purchasing and resetting, that make it sustainable for your own personal finances and realistic for where you are at in your journey.
Let’s make some final points here on the title of this episode - opportunity vs scam. Here’s our take on that. Trading is an incredibly financially risky pursuit. You have to study endlessly in your market of choice and really learn a true method behind her swings AND gain confidence and experience to learn how to capitalize on it all. This is not a small undertaking. It takes years. So what is the best way to journey through your evolution and leveling up? The answer won’t be the same for everyone. I truly see the benefit of trader funding companies for retail traders such as myself. But, as with any aspect of trading, you will gain the most benefit by utilizing them as a resource to be leveraged with moderation! When you trade, is it important to honor your discipline with your stop loss management and with your position sizing? Of course it is! These are core essentials to a real trading system. So, take that approach with funded accounts! Just because you can buy endless accounts in a day and trade with 10 contracts at a time across 20 accounts, do you need to? Break down how much money in wins a day will really change your life, and then reverse engineer that! You will see that a moderate amount of points in a few PA accounts is seriously impactful to anyone’s bottom line. That legit moderate account growth will compound with time if you can manage your impulses and not rush!
As with all aspects of trading, there is power for longevity and large successes with patience, peace with a steady pace, and a strong risk management. Becky, for example, has had to set rules for herself with how many evals she will buy per week and how many contracts she will trade each day depending on the setup, NEVER depending on how much her company will authorize. We are ultimately the CEOs of our trading businesses. Our rules should be the bottom line. Has Becky learned these essential lessons for her trading energy the hard way due to her stubborn personality - hell yes she has!
With this perspective and personal responsibility requirement, how can we speak negatively on a funding company? They are putting us in the driver's seat with significant opportunities at our disposal for a menial fee. The issue arises when we fail to control ourselves. That is not their fault or responsibility. It is ours. We use Apex and are very grateful for the protection and opportunity they provide us. We love trading and are always improving our strategies, both at our charts, and with the finances surrounding our trading executions.
We all get to design a trading strategy and approach that is unique to and most importantly serves us on our path to consistency. If you can manage yourself, then you can certainly use funded accounts as a less riskier way to trade the markets. However, it adds a layer of complexity that will also take time to work out. So as always, let’s continue to do the work! We’re so glad you guys tuned in for this discussion with the Market Mamas! This is an important topic for traders, as it is a very readily available opportunity in our world and it is quite different from trading your own money. We hope we did this debate justice and would love to hear your feedback, thoughts, opinions! We love a good, authentic dialogue session!!
If you are interested in funding companies, we have provided our coupon code in the link below. That will get you the current best available rate on all account sizes with Apex Trader Funding. Our best trading days are ahead of us!
Apex Market Mamas Coupon Link: https://apextraderfunding.com/member/aff/go/travelgoals
Apex Market Mamas Coupon Code: ITWJBGKR