Live the dream. Become a funded forex trader. Trade other people's money instead of your own. Massive upside, limited downside.

That's the pitch. But is it true...?

Sort of, but the odds are heavily stacked against you. That doesn't mean these programs should be ignored altogether though.

See, in theory, there should be no difference between these two paths πŸ‘‡

In reality, there is.

If you can trade, you have two choices. Stump up your own cash, use Other Peoples Money (OPM) or both.

These platforms pitch the idea of managing OPM, protecting the trader from any of the downside risk (beyond the initial/subscription fee) and sharing a huge chunk of any profits. What an amazing deal!

Now, if something sounds too good to be true, it usually is. There's a lot of 'marketing' and half truths that go into the funded platforms.

Again, that doesn't mean they should be ignored entirely. Just understand the game you're playing here, the risks involved and how the deck is stacked.

Perfect example is the idea that you're trading the advertised account size. You're not. You're trading the maximum drawdown.

You think you've got a $100k account. But if the maximum drawdown is 12k,hit that and you're booted, account closed, game over, insert coin to try again... well, it was only ever a $12k account at most.

Then there's the question of whether your trades actually hit market at all...

Many of these companies operate with 'demo' accounts.

Basically, it's an in-house simulated PvP trading game.

The hopefuls lose their accounts and forfeit the 'evaluation' fees which, in turn, fund the payouts of those who don't lose their accounts (until they do). Whatever's left over is for the company.

It's a great business model and not dis-similar to the many brokers who operate B books. The broker takes the other side of client trades and lets the probabilities do their thing... πŸ‘‡

It is what it is.

As with everything, some of these firms are better than others. (so DYOR!).

Paracurve did a superb writeup of these platforms here πŸ‘‡

Funded Trader Platforms: A (Seriously) Objective Dive Into How They Work (No Affiliate Links) - ParaCurve
It was roughly ten years ago when I saw this β€œpay to prop trade” business model for the first time. Since then, many, many copycats have popped up and it’s easy to see why: this is not the most challenging business to get going, and the money (seems to be) pretty good. It really depends […]

One massive issue is the opaque and petty nature of some trading rules and conditions... πŸ‘‡

...these rules usually have an enormous impact. Some of them were so bad that most traders would need the equivalent of the β€œholy grail” to pass and maintain the account, making it very clear that some of these business have zero interest in actually funding traders.

Basically, the rules are designed to trip traders up, meaning the account is 'blown' on a technicality, thus ensuring that no payout is due and (hopefully) making the trader feel like the lost account is no reflection of their trading ability (so that they play again)...

Is it a predatory business model? Yes!

Is it also a highly profitable business model? Clearly! New firms are popping up all the time, and telegram channels have become dedicated comparison sites πŸ‘‡

Does that mean nobody should even try? We'd never be that negative, just trying to manage expectations...

It's extremely hard to see success with these programs.

So, if the expectancy of trading with these firms is so low... Why highlight them?

Two big reasons.

Reason #1 - What if...?

Let's be honest, people are gonna do it anyway. Just like playing the lottery. Even though you know the odds are against you, what if...?

Once you know the rules of the game, it's easier to avoid the traps. It's not impossible to make money with them, but it is improbable.

Consider that in February 2023, the pass rate for 'Phase 1' with My Forex Funds (one of the larger firms) was only 19%. Of those that pass phase 1, only 42% of them made it through phase 2.

Which means... just under 8% make it to the 'profit-sharing' part of the game. In theory at least... More importantly, do they actually get a payout?

According to the Prop Journalist, most don't... πŸ‘‡

In October 2021 4% of traders who passed phase 2 reached a profit split and in November 2021 the figure was only 3%
Only 0.45% of traders who start an evaluation receive a profit split... equivalent to 1 in 204 traders earning a profit split

I can't find the source material, and it's a bit dated now. Those odds sound about right though and the model hasn't drastically changed. It's extremely tough.

As competition increases, the terms for a trader who understands how to play the funded trader game start to improve. That's already happening. Challenges are becoming easier to pass, many are removing the time limits, allowing overnight trades, and so on.

So, if you can figure out the game, stick to the larger firms (so that liquidity/payouts are less likely to be an issue), be disciplined enough to make decent trades and keep cashing out, it's not the worst game to play for a while.

But it's not the best either.

There's scant evidence of anyone trading with these firms building a career as a professional trader.

One slip, one simple mistake and you're done. Do not pass go, do not collect $200. Start the time-consuming process of 'proving yourself' again...

Are there alternatives?

Always. Compound your own account and stick to prudent risk management.

Seriously, if your only issue is lack of funds/under-capitalisation, companies like Darwinex exist to fill that void.

They essentially operate as a fund, attracting investors, charging management & performance fee for deploying the capital into the best strategies that Darwinex traders are running.

Each trader/strategy becomes an index (known as a DARWIN), and the trader earns performance fees on the success of the strategy and the amount of capital deployed into it πŸ‘‡

Darwinex charges a 20% performance fee on any 3rd party profit in DARWINs. 15% is for you, 5% for Darwinex.

Whether you're trying to grow an account, generate capital from a funded prop firm, or build a track record to trade OPM, the key to ANY trading endeavour is professionalism.

Just because these firms look like lotto tickets, that doesn't mean they should be treated that way...

With that in mind, you'll be hearing a lot more about Darwinex Zero, bringing professional traders and investor capital together.

Read our explainer and... πŸ‘‡