Forex trading attracts a lot of traders and investors with lower levels of capital due to the large leverage offered, paired with the low minimum deposits that most brokers offer. For this reason, when traders finally reach that consistently profitable milestone, most forex traders look to take on additional capital so they are able to make a living from their craft.
The best way to get investors for forex trading is either through finding private investors personally, or using prop firm funding to scale your capital fast. Private investors could work out better in the long term but finding prop firm funding is much easier and faster. Let’s find out more..
Steps To Getting Investors For Forex Trading
There is a lot we need to look at before taking on investors for something as risky as forex trading. As I am sure you’re aware, 75-90% of all retail traders will lose money, making it a very hard market to be actually consistently profitable within. A lot of traders have results that look a little something like this…
Many traders, including me 5 years ago, have a very small winning streak and start thinking that the thing holding them back is a lack of capital. ‘If I had £100,000 I could easily make £5,000 a month’. The fact is this really isn’t true and leads to huge losses for traders, as they lack the fundamental skillset to manage large capital.
Trading a £100 account should be exactly the same as a £100,000 account – if you cannot manage one, you won’t be able to manage the other. In short, if you are not already consistently profitable for over 6-12 months I would advise it isn’t worth trying to find investors yet, as you most likely will only cost yourself time and money.
Getting Large Investors For Forex – Your 2 Options
Now we have had a brief look at the prerequisites for gathering capital in forex trading, let’s have a look at the two most common ways of attaining capital…
1. PAMM Accounts & Track Records
Until more recently, the most common way to get investors for forex trading was to go and find private investors yourself. This would usually be either through friends, family, acquaintances or even through investing and trading forums.
This method can be really successful for finding investors but these days it is definitely the most long winded and requires the most work from you. Firstly, you will need a minimum track record on MyFxbook or FxBlue of 12 months.
Once you have a track record to produce with in-depth statistics of your trading performance, you would then usually setup a PAMM account with a regulated forex broker. Typically the investor/s would then deposit with your chosen broker, after they have conducted due diligence on the broker in question, then you will be able to manage their funds here without actually getting a license to trade other peoples funds.
In return for managing the investors funds, you will either be paid a quarterly management fee or receive a percentage of the profits obtained from your trading efforts. However, there are a few issues with looking to get capital in this way.
This is a very ‘old school’ way to get investors and isn’t really too successful for the majority of traders. High level investors with a lot of capital won’t really even look at you unless you have years of track record and incredible trading results. Low level investors don’t have the capital or realistic expectations of trading to make your arrangement worth while.
2. Prop Firm Capital
Prop firms bridge the gap between retail traders and institutional levels of investment. Before the days of FTMO and 5ers, it was relatively difficult to get funded and it would take years of consistency to get noticed. However, the ball game has now changed!
If you’re unfamiliar with how these companies work, instead of having a track record to prove you can trade, they will make you take a challenge/test to prove your skills. These usually last 30-60 days and during the process, you must adhere to set trading rules regarding drawdown, profit, daily loss and maximum loss. If you hit the targets and stay within the rules, you will receive funding and get a profit share up to 80% on the capital!
There are a huge amount of prop firms out there and each firm has different trading requirements and funding options, depending on your preferences and style of trading. If you don’t actually know where to start, I have a full guide on how to find the best prop firm to suit your style.
Prop firms are by far the most popular way of scaling a trading account and have completely replaced the idea of finding investors. The security and ease of working with a firm outweighs the potential upside of having a few private investors these days.
If we look back on the ForexFactory Forum from 2015, traders had consistent 5-6% gains per month and were begging for funding. If these traders had prop firms at their disposal, they would be banking HUGE profits now with that consistently.
The Pros and Cons Of Having Investors In Your Forex Trading
The idea of having a £1,000,000 trading account or even just a £100,000 sized account definitely seems appealing at first but there certainly are drawbacks that most traders don’t really consider…
It goes without saying that you are able to potentially make a lot more money with a large trading account. Trading returns should all be looked at on a percentage gain basis, so if you’re consistently averaging 6% per month on your £5,000 account, you should be averaging the same 6% on a £100,000 account which will of course net you £5700 more per month.
Larger trading capital also opens up more doors for new investors and new projects. You aren’t really thought of as a professional trader if you only have a few hundred dollars in your account, so finding the first few investors is definitely hard. However, once you start meeting investors, have connections and prove yourself in the industry, capital will typically flow in your direction and the potential to scale up to new levels will be there.
The first issue with having investors for your forex trading is the psychology aspect and the additional stress. When I first took on someone else’s capital, the stress was really getting to me. In theory, you should get the exact same returns on a large account as a small account, using strict risk management. However, I found that I was taking smaller trades, being much more cautious and saying no to good trades that met my trading plan purely out of fear.
The next potential issue with having investors is the fact you may now have targets to hit and rules surrounding drawdown, holding trades over news and weekends etc which you didn’t have when you were only responsible for your own trading. If you have found private investors, the terms of your agreement will be subject to whatever you decided before beginning trading with them. If you went down the prop firm funding route, using one of the top forex prop firms, you will now have fairly strict rules to abide by to keep your funding.
In Conclusion – How Can You Get Investors For Forex Trading?
In summary, if you’re a profitable forex trading looking to take on investors capital, the best and fastest way to do this is by using prop firms. With prop firms, you can have access to vastly more capital, even up to $4,000,000, with no long track record or having to deal with multiple different investors demands.
The trading rules are all laid out from the start and you can receive funding from 0-60 days depending on which of the best prop firms you are trading with. You don’t need to hire a solicitor for any contracts, which you may need to with private investors.
I would personally recommend FTMO, which offer one of the easiest funding programs and up to $400,00 in funding in less than 60 days, should you be successful. I have a full review of my FTMO experience here, if you are interested.
If you need any help finding the best prop firm to suit you and your trading requirements, I have a guide here on every aspect you need to consider when applying for funding.