People who have a good understanding of the financial markets, but who lack the capital to really make money moves, can use prop firms and funded trader programs to make use of their skills. These programs allow traders access to a much deeper pool of capital than they can raise themselves, and to play the market in a much more significant way as a result. But how do these programs work?
It is relatively well known that in most financial markets, most of the gains that people see are incremental and occur in small percentages. This means that big companies and well-established investors who have large sums of money to play with can make bigger gains with the exact same moves that smaller traders make, simply due to the amount of capital they have. Funded trader programs allow traders access to accounts that have much more capital in them than they could otherwise use, and to generate some serious returns with that money, without taking personal financial risk.
These programs are typically run by proprietary trading firms, or prop firms, and have been growing in popularity over the last couple of decades. Funded trader programs, such as Get Leveraged, allow traders to access larger capital allocations without depositing any personal funds at all. But how do these funds work? Surely they don't just allow anyone to risk their money and get rewarded for it.
Let's take a closer look at the main features that many funded trader programs use, such as evaluation phases, profit sharing and risk management.
What Exactly Is a Funded Trader Program?
Simply put, a funded trader program is when a prop trading firm sets aside a certain amount of capital into an account that they then allow a trader access to. This lets the trader use that capital to make trades and generate profits. These profits are typically shared on a percentage basis, as we will cover later.
Prop trading firms get traders to pay a fee to take their evaluation, giving them access to a funded account if they meet the requirements that the firm has for trader performance. This is why it's important for traders to be certain that they can meet a firm's requirements before attempting the evaluation. Some firms, like Get Leveraged, have even minimized the upfront risk of the evaluation fee by allowing traders to pay for the evaluation only if they pass it.
In a nutshell, the firm provides the money and the trader provides the expertise. They then both enjoy the profits.
Why Have These Programs Risen in Popularity?
For a large number of traders, the biggest barrier to financial freedom and significant portfolio growth is starting capital. It doesn't matter how well a trader is able to read the financial market; without the capital to make the big money moves, they are unlikely to see much growth. Funded trader programs like Get Leveraged allow traders to jump-start their trading careers and transition into full-time trading work if they have the right skills.
The idea is that traders can focus on building consistency in their strategies and skillsets, without risking a lot of their own money and without needing to build a substantial amount of capital from nothing first.
Funded Traded Programs Have An Evaluation Phase
Almost all funded account providers, such as Get Leveraged, typically assess traders through phased evaluation systems before allocating capital. These evaluation phases are designed to determine whether or not a trader has any idea what they are doing in the financial market, as well as their ability to stick to a risk management rubric and hit profit targets.
Obviously, funded trader programs can't just let anyone have access to their capital, and they need to screen potential traders to ensure that they have the ability to do the job.
What Are Common Risk Management Rules
One of the most important things that most prop trading firms require their traders to work under is risk management rules. These are designed to ensure that the firm's capital is protected and that traders make smart money moves. Some typical rules can include:
Restrictions on position sizes.
Requirements for trading behaviors.
Maximum daily loss limits.
Maximum drawdown limits.
Controls around leverage.
The idea is that these rules will keep traders acting in a disciplined way and will protect the firm from significant losses, while still allowing traders to make plays in the market.
How Does Profit Sharing Work?
One of the most important parts of the prop trading firm and trader relationship is the profit-sharing agreement. When a trader passes a prop trading firm's evaluation phases, they then sign a profit-sharing agreement, which stipulates the percentage of profit that the trader will keep on trades they make.
The industry standard for these agreements is around 80% in the trader's favor, but there are other factors that can increase or decrease the attractiveness of these agreements. These agreements encourage traders to do well, as the better their performance, the more they'll bring home.
Final Thoughts
Funded trader programs are the perfect answer to the problem of small traders and new traders not being able to see proper returns from their financial market knowledge. Funded trader programs like Get Leveraged are allowing traders to use their capital to make proper use of their skills, whilst reducing the upfront risk to virtually none. Through profit-sharing percentages, funded trader programs succeed when the traders who work in them succeed.
