Do you find it weird that so many traders are now turning towards prop firms to kickstart their careers? Do you also consider it strange to connect with prop firms when traders can easily use their capital to trade? Two primary options available to traders when making bets in the market are funded accounts and independent accounts. Where prop trading firms provide funded accounts, independent accounts are personal to the traders. This significant difference brings different considerations to traders.
In this article, we shall discuss the pros and cons of using funded accounts and independent trading.
Funded Accounts:
Funded accounts refer to special accounts provided by prop trading firms to traders who don’t have enough personal funds to make the trades. These firms absorb the financial risk associated with trading and allow the traders to make trades without risking their funds. Funded accounts offered by the Best Prop Firms for Day Trading also reduce the reluctance of new traders to enter the market. All they have to do is pay a minimal fee for the evaluation process, get their hands on the funded accounts, and make actual trades.
For traders with limited budgets, these funded accounts open new doors of exploration in the trade market.
The Profit Split Rule
The profit generated by the trader is likely to be massive. However, no matter how big or small the profit is, it is always divided between the trader and a proprietary firm according to a pre-set ratio. The trader chooses whether to reuse this profit amount in the trading market and generate further profit from it.
Accountability
Regarding funded accounts, the traders are accountable for their actions. They must adhere to the rules and regulations the proprietary trading firm sets, such as the drawdown limits and daily loss limits. The advantage is that traders cultivate discipline, mastering the art of strategic and controlled trading. However, the downside is that they become too restricted by these rules and cannot make drastic decisions.
Psychological Impact
As the trader has no risked stakes and the prop firm provides the capital, he has no psychological pressure to showcase exceptional performance and generate extensive profits. He can make stress-free decisions, and this mindset helps him take wise steps.
Independent Trading
Compared to the funded accounts in which proprietary trading firms provide the capital to trade, independent trading requires the trader to use his upfront capital when he starts trading.
Limited Budget
Traders have limited budgets and can’t play a bigger game in the market, so making high-risk decisions becomes challenging. This limits their capacity to showcase their skills and generate massive profits by accumulating enormous capital for trading.
Restricted Profit Generation
As mentioned earlier, the funds used for trading are owned by the trader and are primarily limited in volume. Consequently, the profit margin is also limited. However, one advantage is that the trader doesn’t have to split and share his profit with someone else. The trader himself solely possesses all the amount generated from trading.
Free Decisions
In independent trading, traders can make decisions and trade at their own discretion. They are not answerable for their actions and can easily take risky shots. However, the issue arises when they start making emotional decisions, greatly impacting their profit margins.
Emotional Decisions
Independent trading requires a trader to focus solely on wins and losses, as his capital is at stake. This way, he faces emotional pressure and stress to showcase good performance no matter what, which negatively affects his decision-making capacity. He gets under pressure and makes immediate decisions that make him lose more than gain!
| Aspect | Funded Accounts | Independent Trading | |||||||
| Capital Source | The proprietary trading firm provides capital. | Capital comes directly from the trader’s funds. | |||||||
| Risk | The firm absorbs risk; there is no personal financial risk for the trader. | The trader bears all financial risks, including potential losses. | |||||||
| Profit Sharing | Profits are split between the trader and the firm based on a pre-set ratio. | The trader keeps 100% of the profit generated. | |||||||
| Discipline and Rules | Traders must adhere to rules like drawdown limits and daily loss limits, promoting discipline. | Traders have complete freedom to make decisions without external constraints. | |||||||
| Freedom | Restricted by firm rules, limiting drastic or risky decisions. | Complete freedom to take risks but no safety net for mistakes. | |||||||
| Emotional Pressure | There is no psychological pressure as traders risk none of their own money. | High psychological pressure due to personal stakes. | |||||||
| Decision Making | Encourages stress-free, calculated, and strategic decision-making. | Decisions are often influenced by emotional pressure, leading to impulsive actions. | |||||||
Final Thoughts
Independent trading and trading through funded accounts are very different. As newbie traders have limited capital, they mostly opt for funded accounts from the Best Forex Prop Firms for UK Traders. It reduces the risk associated with losses and provides them access to massive funds. The evaluation test, a prerequisite to being a part of the prop trading firm, requires them to pay a small fee, which is an excellent option compared to the enormous investment option they get.
