Is getting funded the way to go? The truth behind funding firms.

The latest trend in forex trading these days is the rapid appearance of funding firms. The premise of these funding firms is that for a fee you are allowed to go through a test where you are given a demo or live trading account and a target to reach. If that test is passed you are then allowed to trade live accounts with huge balances to trade where you can keep up to 85% in profit. It seems like a viable funding option as a new trader with little funds, however there are a few things you need to understand about how the funding business works that you may want to consider before joining.

How do Funding/Prop firms make money

Essentially there are two ways these firms make money. The first is through trader profits. The profits earned by successful traders are split between the trader and the firm. With this in mind, the firm is then motivated to find more and more successful traders that can benefit from the profit share system.

The other way in which these firms make money seems counterintuitive however it is through failing traders. Remember, 90% of traders are losing money in the market. Prop firms take advantage of that and offer up a “testing fee” during this test you essentially pay to trade a demo account to prove your abilities. Because 90% of participants will fail the first test, all these props do is pocket those testing fees. That's why you have been seeing all these prop funding adverts everywhere. They want your testing fees.

They further protect themselves by placing a huge amount of funds on you only when you are now a proven trader. And even then, the chances are that the loss allowance on the account is mostly provided by the testing fee that the trader provided, so if the account blows, the prop/funding firm loses close to nothing. If a trader earns profits after the test they become shifted to another source of income through the profit share system.

Should you then think about getting funded？

Well, I think of it this way.. if you were to already be trading with $200 in the market and were going to lose your trades, then all you did is change the hands of who you are giving that money. You need to understand that if you are aiming to get funded you have to be on top of your trading strategy and risk management. It's all about the discipline that you are willing to stick to when trading, if you cannot see yourself trading without a stop loss then you need to rework your strategy. However it is possible and if you get funded you can start earning the amounts that you dream of earning with your small account so yes it is possible.