Funded trading accounts explained: what are they?

Funded trading accounts are real, live trading accounts whose equity belongs to a third party known as a proprietary trading firm or prop firm. The main advantage of these accounts is that traders can trade with a much larger account balance than they would otherwise have by themselves. The profit is then split between the trader and the prop firm.

In most cases, the trader must pass a forex funded challenge in order to prove to the prop firm that they are profitable and can manage risk well. For example, the challenge may consist of making 10% of the initial account balance within a certain time frame. There will also be strict rules regarding losses. For example, the trader may fail the challenge if their account runs at a 5% or greater loss in a single day, or a 10% loss overall.

Funded trading accounts

Here are the main advantages of funded trading accounts:

  • They effectively allow you to trade with a much larger account balance
  • You usually aren’t liable for any losses (but always double-check this to be sure)
  • You aren’t risking your own capital – just the cost of the challenge
  • If you are consistently profitable, the prop firm may increase the size of your account

We think funded trading accounts are a brilliant idea. They bridge the gap between a demo account and the risks that come with trading your own capital, while potentially still allowing you to generate a sizeable side income. You must demonstrate discipline and good risk management not just to yourself, but to a third party.

How do they work?

Some prop firms offer an instant funded account. This means that you don’t need a pass a challenge on a demo account. Simply pay an upfront fee or a monthly subscription, and you will receive access to a live account with real money.

However, the fees for instant funded accounts are typically much higher than trading challenges, and probably the most common entry path is to pass a challenge.

The rules may vary, but here are some common rules:

  • You must reach a certain amount of profit, based on the initial account balance.
  • You must not lose a certain amount of money, perhaps 5% of the account in a single day and 10% over the course of a challenge. Note that these limits may also refer to the losses from open trades running at a loss, not just the losses from closed positions.
  • You must reach the profit target within a certain time frame, e.g., a month. However, not all firms set a deadline.
  • You must trade for at least a certain amount of days, e.g. 10.

Sometimes the challenge may consist of two phases. An obvious example is the challenge model from FTMO. This consists of a 30-day “challenge” period, and then a 60-day “verification” period.

Breaching the drawdown rules will cause you to fail the challenge and cost you the fee. However, many firms offer a free re-take if you made a profit but fell short of the profit target.

How much does the challenge cost?

This varies by prop firm. It also varies based on the size of the account you hope to gain.  For example, the cost for a $10,000 funded account challenge could be less than $200. However, using the FTMO 200k account challenge as an example, the challenge fee at the time of writing is €1,080.

Many prop firms will refund the cost of the challenge fee once the trader has gained a certain amount of profit on the real funded account.