What Is A Funded Trading Account: Everything You Need To Know

While opening an account with only a few hundred dollars might be a good starting point, you will need larger capital if you want to make a living with trading. In fact, only 12% of traders think that trading can be a full-time job. But what do you do if you want to take this profession to a new level?

Funded trading accounts are supported by capital from a proprietary firm or investor, allowing traders to trade with the prop firm's capital rather than their own.

By the end of this article, you will know everything about funded accounts and how to choose the right prop firm. Make sure you read till the end as we are going to equip you with actionable tips that will help you get funded more easily. Let’s get right into it!

What does it mean to have a funded trading account?

FFinancing your trading account can be done in countless ways:

• Savings
• Salary from employment
• Business or freelancing income
• Loans or credit

But one way or another, you will need starting capital.

Funding your trading accounts from personal savings might be enough, but it can leave you vulnerable to unexpected expenses or family emergencies.

Relying on business or freelancing income is relatively low-risk, but accumulating enough capital this way can take a considerable amount of time.

Funded trading accounts offer advantages in both areas. They provide you with substantial capital while limiting exposure through financial restrictions aimed at reducing risk. Many proprietary trading firms offer challenges, and you get funded only if you pass one.

While you will need to pay a percentage of your earnings or monthly fees, this opportunity allows you to achieve results that would be difficult to attain otherwise.

Do funded accounts have leverage?

Typically, they offer a conservative leverage of 1:1 or 2:1. But, for example, IC funded offers:

• 50:1 on FX/Gold
• 10:1 on indices and other commodities
• 5:1 on equities

However, leverage carries significant risks. It amplifies both positive and negative outcomes, making large swings in account value possible, which could violate the prop firm’s limits in the blink of an eye. That’s why using stop-loss orders and maintaining a disciplined trading strategy are essential to minimize these risks and protect capital while trading with leverage.

How to qualify for a funded trading account

Qualifying for funding varies across proprietary trading firms. While some prioritize short-term performance, most focus on consistency and strong risk management skills. After all, no one will provide you with capital if you are reckless, showing a 20% increase one day and a 50% loss the next.

Typical Qualification Process

The evaluation process, whether called a challenge or qualification, involves specific criteria you must meet:

• Paying an entry fee
• Regular trading activity
• Achieving a certain target
• Staying above a defined loss threshold
• Using only trading strategies that are allowed

For example, high-frequency trading (HFT) is typically not allowed in most challenges because it cannot be effectively replicated during the funded trading stage.

About funded account challenges

Funded account challenges are designed to test a trader's skills and discipline before granting access to a funded account. You will need to meet specific targets and adhere to strict risk management rules within a set timeframe.

IC Funded Challenge:

Our IC Funded Challenges are popular options where traders must achieve predetermined performance targets, one of 10% and the second one of 5%, without exceeding a daily drawdown limit (5%) and a maximum drawdown limit (10%).

Successful participants will be awarded a funded account, allowing them to trade with the firm's capital and share in the returns (75/25 and after a month 80/20 in your favor).

What to consider when becoming a funded trader

Many stock and FX traders become solo traders, who are largely independent. This seems like the simplest way to start: choose a suitable trading platform that gives you a variety of trading options, fill out your registration to get started, etc.

Getting funded isn’t that hard if you are a skilled trader. In the last few years, the competition between prop firms has made it cheaper and easier than ever to become a funded trader!

This is what you should consider when choosing a prop firm:

1. Opportunity to scale: After passing the evaluation process for $10,000 and getting funded, is there a system allowing you to scale to $50,000 or more? If so, what are the criteria?

2. Difficulty of Passing the Challenge: The evaluation process can vary significantly between platforms. Some may have very challenging criteria, while others might be more lenient. Be cautious of prop firms with overly easy challenges, as they may be unstable, and be wary of firms with extremely difficult challenges that might be trap setups.

3. Withdrawing and Shares: Getting your reward is as important as passing the challenge, and if you pick the company that takes a large portion of your share, you might find yourself in a situation where other options would have been better, even if they provided you with a smaller capital to trade with.

4. Reputation of the prop firm: How long has the company been in business? Does it have a community of users that you can access? What do people say about it on forums?

Psychological aspects when trading with someone else’s money

When was the last time you were affected by increased pressure and responsibility? The chances are it was when you transitioned from a demo to a live account. The same feeling can overwhelm you when trading with a funded trading account. That’s why you should strictly follow your own trading rules and maintain a logical approach.

Pro Tip: If fear of negative outcomes is influencing your decision-making, consider incorporating regular meditation and visualization exercises to reduce emotional attachment to the outcome.

Long-term career opportunities

There is a BIG difference between just putting in hours and taking effective steps to improve.

How long do traders trade? 39% have been trading for between 1 and 3 years, 53% have traded for less than 1 year, and 1% have traded for over 10 years.

In funded trading, many traders seek quick success and overlook the disciplined path. Those who pass the evaluation process are typically well-prepared, and you should be too!

That’s why it is very reasonable to develop a clear, tiered plan for your trading career.

You can start with one account size, master consistency at that level, and then progress to the next tier. Even if you feel ready to advance, it’s wise to stay at your current level a bit longer to fully drain its potential and solidify your mastery.

The following account sizes can serve as your roadmap:

• $10,000 funded account
• $50,000 funded account
• $100,000 funded account
• $250,000 funded account
• $500,000 funded account

You can build a sustainable and successful trading career by advancing methodically through these tiers. Eventually, you may reach a point where you no longer need external funding because you have accumulated enough capital to trade independently.

Then you can retain all of your earnings!

Choosing the Best Fit for You

Your choice of a prop firm should align with your trading strategy. Are you an aggressive trader? Do you prefer operating with a smaller capital and lower fees?

Some traders prioritize lower commissions and don't mind paying a recurring fee for access to funding. For now, don’t worry about the exact payout percentages; to choose the best funding company for you, simply start by understanding your own trading style and preferences.

Only then, explore different firms' websites, compare their requirements, and select the one that suits your needs the best.

Withdrawing money from a funded account

Withdrawal policies for funded accounts vary across platforms, but some general rules apply.

• Earnings: Funded traders typically keep a percentage of their earnings, ranging from 50% to 90%, depending on the prop firm's terms and the trader's performance. For example, IC Funded initially gives you 75%, and after one month, you keep 80% of the earnings.
• Tax Implications and Considerations: Withdrawn earnings are usually subject to taxation as income. Traders should keep detailed records of their earnings and consult with a tax professional to ensure compliance with tax laws and to take advantage of any applicable deductions or credits.
• Payment Methods: Your earnings split can be transferred to you via standard bank wire, payment processors such as Skrill, PayPal, or through various cryptocurrency options.

What happens when you lose money on a funded account

op trading firms typically impose various limits to control risk, including daily loss limits, maximum drawdown limits, and position size limits. Our example:

When a trader breaches the loss limits, they usually need a new account because this is considered a hard breach.

So, what can you do to avoid breaking the limit?

• Setting Stop-Losses: Always use stop-loss orders to limit potential losses on any given trade. This helps in preventing large, unexpected losses.
• Using Proper Position Sizing: Calculate the appropriate position size based on the risk tolerance and the specific loss limits of the funded account. Try trading with a risk of 1-2% of your account for each trade, and use leverage wisely.

Account recovery options if you break the rules

The rules exist for a reason, to protect the prop firm’s funds.

Usually, the prop firm offers the trader an opportunity to retake an evaluation to get a new funded account, depending on the company rules. However, using techniques that the proprietary firm strictly prohibits can result in a permanent ban.

Copy Trading, trade manipulation, high-frequency trading (HFT), unauthorized software, and account sharing are the most common ones that can lead to permanent bans.

Get the best information from experienced traders

Many prop firms offer extensive training, mentoring, and resources to improve traders' performance and reduce the number of blown accounts. 

This level of support is typically more comprehensive than what traditional brokerages provide, as prop firms invest heavily in the development of their traders to ensure mutual success.

Brokers earn from trading fees, while prop firms benefit from the success of their traders.

Conclusion

Funded trading accounts offer a unique opportunity for traders to access significant capital while limiting personal financial exposure.

Now that you understand what a funded account is, how to qualify, and the psychological aspects involved, you should be prepared to take the next steps on this exciting career path.

Trading isn't just a summer side hustle—it’s a serious, long-term commitment.

Ready to test both your trading skills and risk management capabilities? Enroll in the IC Funded Challenge today and take the first step towards professional trading with substantial capital.