The Ultimate Guide to Funded Accounts in Trading
Funded trading accounts have become a game-changer for traders looking to access significant capital without risking their own money. These accounts are offered by proprietary trading firms (prop firms) that evaluate traders based on their performance before granting access to real funds.
In this guide, we will explore:
- What funded accounts are and how they work
- The benefits and risks involved
- Drawdown rules (Daily and Max Drawdown)
- Risk management strategies
- Real-world examples using a $10,000 funded account
By the end, you'll have a clear understanding of how to navigate funded accounts successfully.
1. What is a Funded Account?
A funded account is a trading account provided by a proprietary firm that allows traders to trade with the firm's capital instead of their own. To qualify, traders must usually pass an evaluation phase, proving their ability to manage risk and generate consistent profits.
How Does it Work?
- Sign Up for a Challenge – Most prop firms require traders to complete a challenge with specific profit and risk targets.
- Pass the Evaluation – You must reach a set profit target while respecting drawdown limits.
- Receive the Funded Account – After passing, the firm provides you with a live account.
- Profit Sharing – Traders keep a percentage of their profits, typically between 70% and 90%.
2. Benefits of Funded Accounts
- No Personal Capital at Risk – You trade with the firm's money, not your own.
- Access to Larger Funds – Trade accounts of $10,000, $50,000, $100,000, or more.
- Scalability – Grow your account and earn higher payouts.
- Professional Risk Management – Learn disciplined trading under strict guidelines.
However, strict rules apply, especially concerning drawdowns, which we’ll discuss next.
3. Understanding Drawdown Rules
Prop firms set drawdown limits to ensure traders manage risk responsibly. Violating these limits results in account termination.
A. Daily Drawdown
This is the maximum loss you can have in a single trading day.
- If a firm sets a 5% daily drawdown on a $10,000 account, you cannot lose more than $500 in one day.
- Exceeding this limit results in immediate disqualification.
Example of Daily Drawdown (5% on $10,000)
| Time | Trade | Balance | Floating P/L | Status |
|---|---|---|---|---|
| 9:00 AM | Start of day | $10,000 | $0 | Active |
| 10:30 AM | Loss | $9,800 | -$200 | Active |
| 1:00 PM | Loss | $9,600 | -$400 | Active |
| 3:00 PM | Loss | $9,490 | -$510 | FAILED (Over $500 loss limit) |
If you hit $9,500 or below, you violate the rule and lose the account.
B. Max Drawdown
This is the total amount you can lose before the account is closed.
- If the max drawdown is 10% on a $10,000 account, the lowest you can go is $9,000 before the account is terminated.
- The max drawdown can be static (fixed) or trailing (moves with profits).
Example of Max Drawdown (10% on $10,000)
| Time | Trade | Balance | Floating P/L | Max Drawdown Limit | Status |
|---|---|---|---|---|---|
| Day 1 | Start | $10,000 | $0 | $9,000 | Active |
| Day 2 | Win | $10,500 | +$500 | $9,500 (Trailing) | Active |
| Day 3 | Win | $11,000 | +$1,000 | $10,000 (Trailing) | Active |
| Day 4 | Loss | $9,900 | -$1,100 | $10,000 | FAILED (Over limit) |
If the max drawdown is trailing, it moves up as you profit, making risk management even more critical.
4. How Much Should You Risk Per Day?
The golden rule of risk management is risking no more than 1-2% per trade.
Recommended Daily Risk for a $10,000 Account
- Conservative Approach (1% per trade) → Max risk per trade: $100
- Moderate Approach (2% per trade) → Max risk per trade: $200
- Aggressive Approach (3% per trade) → Max risk per trade: $300
Example of Risk Management
| Trade # | Risk per Trade | Stop Loss (SL) | Take Profit (TP) | Outcome | Balance |
|---|---|---|---|---|---|
| 1 | 1% ($100) | 20 pips | 40 pips | Win | $10,200 |
| 2 | 1% ($100) | 20 pips | 40 pips | Loss | $10,100 |
| 3 | 1% ($100) | 20 pips | 40 pips | Win | $10,300 |
Following 1% risk per trade allows you to survive longer while maintaining a good reward-to-risk ratio.
5. Best Risk Management Strategies for Funded Accounts
- Set a Daily Loss Limit Lower Than the Firm’s – If your firm has a 5% daily drawdown, set your personal max loss to 3% to stay safe.
- Use Stop Loss on Every Trade – Never trade without an SL.
- Follow a Risk-to-Reward Ratio (RRR) of 1:2 or Higher – For every $100 risked, aim for at least $200 profit.
- Avoid Overleveraging – Keep lot sizes reasonable to avoid excessive losses.
- Withdraw Profits Regularly – Secure gains instead of leaving them vulnerable to market swings.
6. Conclusion: How to Succeed with Funded Accounts
Success in a funded account depends on risk management, discipline, and consistency. To summarize:
- Understand the drawdown rules (Daily & Max Drawdown).
- Keep risk low (1-2% per trade).
- Use stop loss and a solid risk-to-reward ratio.
- Follow a trading plan and avoid emotional decisions.
Funded accounts offer a great opportunity, but only smart traders can keep them for the long term. Stick to strict risk management, and you’ll maximize your chances of success.
Need More Guidance?
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