Forex trading has a very low barrier of entry, meaning more and more traders are coming into the industry with lower trading capital. This is great for beginners to learn but with average monthly profits for consistent traders sitting around 3%, growing forex trading accounts is painstakingly slow. This is where account funding comes into play…
It’s possible to obtain funding for forex trading through either direct investment or online prop firm funding. Direct investment will require a track record of 3+ years and will have various legal obligations in the setup stage. Online prop firm funding is a much simpler route and you could be funded within a few weeks with no legal headaches.
The 2 Ways To Get Funding For Forex Trading
Getting funding for your forex trading is really the stepping stone from a beginner trader to a professional trader. With that being said, obtaining funding, until recently, hasn’t ever been that easy.
Traders used to be required to have industry connections and a network of high net worth individuals, alongside track record spanning 5+ years.
Luckily, this is no longer the case and the majority of consistently profitable traders are seeking funding!
In fact, a lack of funding is one of the hardest parts of forex trading
and leads to many traders quitting!
It’s worth mentioning that I wouldn’t bother seeking funding until you have at least 6 months of profitability under your belt. It’s not the cheapest or easiest process in the world so if you aren’t sure of your ability, I would hold off.
There are two main ways to get funding for your forex trading business. They are by either obtaining investment through a direct PAMM account or taking the online prop firm route.
Obtaining Forex Trading Funding Via Investors
The most common way to increase your assets under management, until recently, was by connecting with private investors that wanted to fund your trading accounts. This isn’t necessarily a bad idea at all, but there are certainly more negatives than positives when it comes to this method of funding.
Firstly, you will have to know some very wealth individuals that are looking to fund forex traders. If you’re a salesman, then you’ll have no issue finding these guys however if you’re not, then finding these investors will be horrendously difficult. Sadly there isn’t a forum dedicated to finding high net worth investors specifically in this space.
Secondly, when approaching potential investors for funding your accounts, it’s likely that they will want to see over 3 years of historical results from a third party like MyFxBook. If you’ve only just starting consistently making profits 1.5 years ago, this is going to rule you out completely.
Thirdly, if you’re able to convince investors to fund your trading account, they will want a cut of the profits. This means that more often than not you’ll find yourself paying up to 50% on profits and this is something I’ve seen first hand many times.
Fourthly, when looking for an investor to fund your trading, there is going to be a huge amount of legal work required. You can either keep the capital in their name and trade their funds for them, or they give you the capital to trade with. Either way, the legal side is a complete headache.
Obtaining Forex Trading Funding Via Online Prop Firms
The best way to get funding for your forex trading journey is through online prop firms. These are essentially online firms that will provide you with the capital to trade their accounts.
They allow you to essentially become a share trader, if that helps. So all of the legal work and headache has been taken away from obtaining funding. The capital stays in their name, so you don’t have any complications to deal with.
There are a range of different funding models used by the industries top forex prop firms. Let’s use FTMO, the most widely used online prop firm as an example…
With FTMO, you pay for a challenge account. The challenge value will dictate what size funding you are looking to obtain. This will range from $10,000 – $200,000 in funding, with a cap of $400,000 in funding (2x $200,000 accounts). For more information about FTMO, have a read of my full review and experience here.
During this challenge, you’ll be given a demo account for 30 days. You will have to abide by their trading criteria during this time. It’s fairly simple, with a drawdown max limit, a daily drawdown limit and a profit goal. Once hit, you’ll be onto a verification stage which is about 50% easier than the challenge.
Once complete, you will be funded with the trading account and receive a 90% profit split monthly on all of your profits.
This is MUCH easier than looking for investors and sorting the legal headaches.
Staying Safe Whilst Trading Funded Forex Accounts
Now we have looked at the best ways to obtain funding for your forex trading ventures, we need to look at staying safe. This is absolutely key when trading other peoples capital and is often something that many traders overlook.
Funded Accounts Are Not Forever
It’s key to remember that you’re trading someone else’s capital and they can pull out at any time. Therefore, I highly recommend using a trade copier to replicate your trades across multiple MT4 accounts at once. This way, whilst trading their capital, you’re also continually growing your capital.
I would also stray away from compounding other peoples capital. When you’re able to take a profit split and withdraw, definitely do so and have that money in your pocket – not theirs.
In Summary – How Can You Get Funded As A Forex Trader?
In conclusion, there are two great ways to get funded as a forex trader. The first is to take on an investor, which can be a real headache. The second way is through online prop firms who own the funds and will provide you with what you need. It’s important that whenever trading other peoples capital that safety takes priority.
Have you taken on funding for your trading? Let me know in the comments below.
