The Pros and Cons of Funded Trading

In his recent webinar ‘How to Pass Funded Trading Tests’, Trade Room Plus lead trader Simon Massey explained some of the pros and cons of funded trading.

Perhaps the most obvious pro is the ability to trade with someone else’s capital. This means that funded trading can be fairly low-cost to get started with. Massey said that, if you have the right trading skills and abilities, you can front a relatively small fee and still potentially get access to large amounts of capital.

“There’s no end of people who are willing to give capital to talented traders,” he said.

Another upside to funded trading is that you don’t have to pay for the losses. The person who provides the capital takes on the risk as well as the potential upside. This also means that funded trading comes with a level of accountability that trading on your own account does not, since there is some oversight that naturally comes with trading someone else’s capital.

Of course, there are cons to funded trading too. First is the ‘trailing drawdown’, or the maximum amount that the trading account balance is allowed to drop by. Massey said that most funding providers give a trailing drawdown, so you have to be careful not to hit those limits.

Another con is that funded trading can sometimes create an impulse to rush or force trades or to over-leverage.

“Just because you’re given X amount of contracts doesn’t mean you need to use X amount of contracts,” Massey warned.

He also mentioned that funded trading often comes with strict sets of rules that need to be followed.

If you are interested in learning more about funded trading, check out this short clip in which Massey explains the pros and cons in more detail.

To learn even more about funded trading and about how to pass funded trading tests, be sure to watch Massey’s full webinar. And if you enjoyed this clip, be sure to watch Trading Futures Without Your Own Capital, with John Hoagland of TopStep Trader.

See all of our free trading videos!