Tom: Woah. Covid cases are really on the rise here isn't it!
Dick: Yeah they are. Anyway, how's trading going for you guys?
Harry: It's fine I guess. Have you guys heard about the Funding Challenge/Program from XYZ Company?
I swear, if I had a dollar for every time I hear a trader talk about being funded, I'd be...
Well not sure what I'll be.
But I'll still probably be writing this blog because I find it very fascinating to see that being "Funded" is the topic that replaces "Which is the Best Fibonacci number to use" these days.
This is especially true after seeing all the questions we received on the "Funded" topic, after we released a recent interview we did with one of our Prop Traders.
In this Blog, I'm going to talk about the hype of being Funded and why you want to approach it carefully.
Here are the main topics:
1. What is a Prop Firm?
2. Why is it gaining so much Popularity?
3. Why is it important to get Funded?
4. Why is it not important to get Funded?
5. When should you be Funded?
6. You are Funded, then what?
7. What you need as a Funded Trader.
If you are wondering about the legitimacy of the whole funding shenanigans, don't worry, it's legit (if it's done the right way).
Prop Firm is short for Proprietary Trading Firm, and these are firms that back traders with capital to trade the markets. From there, the firm will take the risk for traders whilst in return, taking cuts from the profit whenever the traders make money.
Proprietary Trading Firms have been in existence for decades and it's still present to this day. You can read more about it Here.
I just want to make it clear that Prop Firms are not scams, they are legitimate (again done the right way and when conforming to regulations).
Now that I've gotten that out of the way, let's proceed to why firms like this that have been in existence for decades are gaining so much attention right now.
There was a time where the entire trading world was obsessing over Trading Bots. Then, it was Trading Signals. Now, most of the talk is around Being Funded.
In recent years, there have been a lot of emerging Online Prop Firms on the internet.
Because these Prop Firms operate Online, they do not require traders to come to their desk physically. Instead, traders can be funded and trade remotely from all over the world.
And to top that off, traders only need to pay a certain 'fee' to pass their 'challenges' to get funded.
From what I've heard so far, this is the message that's going around:
'Don't worry if you fail the challenge. You can pay the fee for the challenge again afterwards. And imagine how much capital you'll have once you passed the challenge.'
- Online Prop Firm
Without giving any deeper thought to this,
Tell me, that doesn't sound enticing...
Now, I'm not saying what's right or wrong here. All I'm saying is, be careful of what you are getting yourself into.
Let me explain...
Is being Funded Important as a Trader?
This can depend on who you are asking. If all you have is $150 to your name, you are going to have a really hard time growing a trading account to a size where you can make a living from this, let alone trading on the beach, with your Ferrari, like your Instagram Trading Mentor.
Of course it's important! I'm sorry if I just destroyed your dreams of being a trader, but it does take money to make money in this business.
Just like any other business! This is not a casino or a get rich quick scheme.
So unless you are able to save up some money to start trading, I can understand that the next option, might be, to look into funded accounts.
'So what's the damn problem Lucas?'
- Raju (with an R)
The problem arises when someone (let's call him Phil) who has been trading for only 6 months on a demo account is looking to be funded.
Phil has been trading for a few months and if those trades were with actual capital, he would have been able to prove his wife wrong about his life decision of becoming a trader!
The next logical step for Phil to take is to look for firms to back him up with actual capital to trade.
He signs up and pays for these 'Challenges' to get funded.
Due to stress and pressure to make it, he fails the first time around.
'It's the markets I swear! The next time I take the challenge it will be different.'
So, Phil tries the challenge again.
Guess what? He's now burnt a portion of his savings that was meant to be used for a vacation with his wife.
You know here he'll be sleeping that night...
In all fairness, I wouldn't say Phil's intention was unreasonable. Bigger capital, bigger chance of making more money, right?
What went wrong was the Stage of Trading he is in before looking for more capital.
The whole goal is to make money, that I get. But to make money, one must know the 'How' to make money. And one must be able to repeat that again and again.
It's not enough to say that, 'if I have a lot of money, I'll invest and make even more'.
If you are reading this blog, you are already well aware that it's never that simple.
Instead of focusing on being funded, Phil's entire goal should be:
'How can I become a consistently profitable trader?'
'How can I make sure that I perform well in a Live Market?'
'What's my trading system that will guarantee me profitability over the long run?'
'What has my trading performance been on the live market the last 12 months?'
And the most important question of them all,
If I'm the CEO of a Billion Dollar Prop Firm, would I invest my money comfortably into this guy (yourself)?
Like any other employment or business, just so you are hired/started a business journey, doesn't mean you've 'made it'.
Far from it.
Not saying that it's not a milestone, it is. But there's a whole new journey ahead now.
You'll have a new set of problems to deal with. For instance:
1. How do I maintain my consistency in profitability?
2. How do I continue to improve to my performance?
3. How do I make sure I don't make any catastrophic mistake in my trading?
Many people see being funded as the 'Final Destination'.
It really isn't.
And the problem arises when people think about being funded in the wrong stage of their trading career.
Let's put it this way,
Just because I got the loan from the bank to open my own Coffee Shop, doesn't mean the Coffee Shop will be a guaranteed success and money making enterprise from day one.
I may know how to be a good barista, but does owning a Coffee Shop means I'll know how to generate profits? Let alone expanding the business.
Speaking to those of you who are already funded. It doesn't matter if you got the funds from your wealthy uncle or a prop firm. Here are the things you always have to keep in mind.
A. With big Capital, comes Big Responsibility.
Theoretically you may think, 'oh I'm still risking only 1% of my account'. But a 1% worth $100 is very different from a 1% worth $1,000. Ask yourself, are you mentally prepared for that?
B. The Environment.
Are you trading with a team of like minded traders? Traders who you can bounce ideas off? Trading sometimes can be extremely stressful and having a team of traders you can trust to talk to could save you from a bad losing streak sometimes.
Do you have access to someone who is able to guide you? Just because you are funded, doesn't mean you are the perfect trader. There's always more to learn. So is there someone in the firm (if you are in a prop firm) that can be there to teach/guide/support you when needed?
There is a lot more that goes into this. What I'm trying to emphasize here is that being funded is just one of the steps to becoming a self sustainable trader. It's definitely not the end goal.
Here's a recap of everything I've wrote about. But let's make it more interesting, in a Q&A format.
Q: If I don't have access to capital should I look for funds?
A: Yes, you should. But before that, are you already sure that you are a consistently profitable trader not just on a demo account, on a live market. And being profitable for at least a year? Because it means nothing if you have a big capital but cannot read the rubber band man properly.
Q: Must I go looking for Prop Firms to get Funded?
A: No, you can save up money from a day job. And once trading live you'll be surprised how much the compounding magic can do to a $10,000 account over a year with a profitable strategy.
I thought I would have more ideas for the Questions on this section but I actually don't. The whole hype around this topic can be summarised with those 2 Q&A. It's actually that simple!
If you feel that I'm discouraging you in any way, then you may have gotten the wrong idea.
My whole intention is to ensure that you are aware of where you are in your trading career and that you are still keeping your eyes on the goal.
The Goal is not to have a $1,000,000 Trading Account.
The Goal is to become a good trader. With that, you'll be surprised how funds will come looking for you.
So, let me ask you this,
Are you keeping your eyes on the Right Goals?
With Pip Love,
Lucas @ Urban Forex
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