Trading is a thrilling yet overwhelming venture. For many traders, the idea of trading at high positions using someone else’s capital is thrilling. You earn profits without putting your personal savings at risk. It’s a win-win situation! But before you partner with a prop firm, make sure you have a clear idea of what you are getting into. Here are five questions you need to ask before signing up for a funded trading account.
1. How Does the Evaluation Process Work?
First things first, how does the funding process actually work? It can’t be as simple as making an account and getting funded. Most prop firms require traders to complete a 1-Step, 2-Step, or 3-Step evaluation challenge to access funds. To pass the evaluation challenge, traders need to comply with strict rules and regulations, such as drawdown limits (typically 5% daily and 10% overall), profit targets (typically 3-8%) and maximum trading days.
You are given a simulated funded account and asked to trade positions under live conditions. Prop firms analyze your performance using various criteria, including trading style, risk management, and emotional control. Study all the interconnected factors and ensure they are feasible.
2. Which Trading Platform is the Account Compatible With?
Next, consider which trading platform is compatible with your funded account. Some common options include MetaTrader 5, cTrader, and Match-Trader. Carefully analyze the pros and cons of each platform. For instance, MetaTrader 5 offers the following benefits: multi-asset trading, advanced technical indicators and time frames, automated strategies, built-in economic calendar and advanced programming language. Consider your preferred trading asset and style, such as forex day trading or crypto trading, to choose the best option.
3. How are Profits Shared?
Prop firms provide capital but keep a predetermined profit percentage in return. Depending on your trading skills and experience, it can be 80/20 or 90/10. Partner with a prop firm that offers a competitive profit-split model and has room for scalability.
4. Are There Any Special Trading Rules?
As mentioned earlier, prop firms require traders to comply with specific trading rules and regulations. Some firms also impose additional rules, such as withdrawal requirements, usage of specific risk management strategies, consistency rule, and margin rule.
Some prop firms also prohibit the usage of robo-advisors to ensure a fair trading environment. Violation of these conditions can lead to reduced or delayed funding. Carefully understand the terms and conditions of a prop firm to avoid any financial surprises later on.
5. Do You Offer Additional Trading Guidance?
Reliable prop trading firms offer more than just capital. They guide traders through thick and thin and help them polish their skills. Inquire if your prop trading firm offers educational resources, such as guides, courses, and lectures from industry experts. Trading guidance can help you understand market trends and make informed decisions.
Conclusion
Partnering with the right prop firm is critical for your trading journey. Remember to inquire about the firm’s profit-split model, educational resources, and trading platform to make an informed decision.
