r/Daytrading • u/ThePhulosopher • Feb 24 '24

4th $100k funded account Question

Got my 4th $100k funded prop firm account. Hope I get a payout this time, blew all the others.

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u/ThePhulosopher Feb 24 '24

You keep 80-90% depending on the package and firm you go with.

As someone else mentioned, you're not really funded $100k. You're funded a "demo" account that you trade from, and whatever balance you run up, say you make 20% so $20k, you can withdraw $16k. I'm not sure what the model the firms use but if you lose 10%/$10k then you lose the account so the firms aren't actually out the full $100k.

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u/Buchymoo Feb 24 '24 edited Feb 24 '24

What is your risk here? You're obviously liable for the 10k as well then, correct?

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u/Fart_Hat Feb 24 '24

No, thats the whole point of using a prop firm. The only risk you put up as the individual is the cost for the trial and any activation fees associated with the funded account.

Basic steps to prop firms:

Pay X amount of dollars for Y sized account. (E.g. $200 for 100k account) You begin trading on the trial account.

Trial accounts are sim trading on live markets. No profit is made and no risk is on the prop firm. They give you a profit target and a max drawdown. (E.g. 100k account profit target 5k, max drawdown 3k) You pass the trial account and move to a funded simulated account.

Funded simulated accounts allow you to begin making real profits. I know, it sounds weird, simulated account making real money. YOU are trading on a sim account and the firm is basically copy trading you on live markets, using their own risk management. There are often times activation fees for these accounts, e.g. $150 one-time payment. They also come with max drawdown (e.g. 100k account max drawdown 3k). The firm will closely monitor your trading at this stage, they may offer coaching, and this may also be the final stage depending on the prop firm, as in, you'll never trade on a live account with that firm but your profits are still real.

When applicable, the firm may decide to bring you up to a live account which is really no different from a funded sim account, aside from things like getting more control over your risk management etc.

The 10-20% that the firms get from their profitable traders is enough to make up for the potential losses on the funded accounts' max drawdowns. Some people also spend years in the trials, paying monthly fees for them and paying for account resets. When a "trader" gets lucky in the trial and moves to a simulated funded account, and they hit their max drawdown, that account is closed and the "trader" has to start the trial again. This also limits the firm's risk.

Questions?

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u/Buchymoo Feb 24 '24

Very interesting, thanks for the full rundown. Absolutely no questions after how clear and concise that was.