Scaling Series: Funded Accounts

Summary

In this episode, we explore how to scale your trading portfolio using prop firms. Prop firms provide capital to profitable traders but are designed for traders to fail. The key to success is understanding the challenge rules, selecting the right account size, and maintaining a conservative approach after obtaining a funded account. Learn how to efficiently pass challenges, achieve payouts, and scale by adding more accounts over time. With a steady, strategic approach and using the 50/30/20 profit distribution rule, you can grow your trading career without rushing or risking too much.

Takeaways

• 😀 Prop firms provide capital to profitable traders, taking a percentage of the profits while generating most of their revenue from failed challenges.
• 😀 To obtain a funded account, you need to pass a challenge with profit targets and drawdown limits set by the prop firm.
• 😀 Always choose the account with the largest drawdown, as this gives you more room to risk and reach your targets faster.
• 😀 During the challenge, adopt an aggressive strategy by risking 20% of the total max drawdown per trade with a minimum 3:1 reward-to-risk ratio.
• 😀 A 50% win rate is considered conservative for the challenge phase, and you will need around 10 trades (5 wins, 5 losses) to reach the profit target.
• 😀 Once you pass the challenge, focus on maintaining your funded account with a more conservative strategy, risking only 10% of the total max drawdown per trade.
• 😀 To request a payout, you must first exceed the drawdown buffer by making at least 1.5x the drawdown amount in profit.
• 😀 After receiving your first payout, reinvest the profits to fund additional challenges and scale your trading portfolio incrementally.
• 😀 Use tools like NinjaTrader and trade copiers (e.g., Replicanto, Apex Trade Copier) to manage and trade across multiple funded accounts simultaneously.
• 😀 Implement the 50-30-20 rule for profit distribution: 50% to fund personal accounts, 30% for investments, and 20% for personal expenses or savings.
• 😀 Avoid scaling too quickly by purchasing multiple challenges at once; prop firms design challenges to encourage failure, so scale gradually and consistently.

Q & A

What exactly are prop firms?

Prop firms, or proprietary firms, are companies that provide capital to traders who have proven themselves to be consistently profitable. These firms aim to find profitable traders, give them capital to trade with, and take a percentage of the profits generated.

Why are prop firms designed for traders to fail?

Prop firms are designed to generate profits primarily from challenges that traders fail. When a trader fails a challenge, the firm makes money. A small portion of profits is earned from traders who succeed, but the bulk of profits come from failed challenges.

How can I pass a prop firm challenge?

To pass a prop firm challenge, traders must meet two key requirements: achieve a certain profit target and stay within a maximum drawdown limit. Failing to either meet the profit target or surpass the drawdown limit will result in failure.

What are the common rules for prop firm challenges?

The two most common rules for prop firm challenges are a profit target, which is the amount of profit the trader needs to make, and a maximum drawdown, which is the maximum amount of capital the trader can lose.

Which prop firm account size should I choose?

It is recommended to choose the account size with the largest drawdown because it allows you to risk more and achieve your goals faster. For example, a 150k account with a $4,500 drawdown provides more flexibility than a 50k account with a $2,000 drawdown.

What is the recommended risk per trade during the challenge phase?

During the challenge phase, it is advised to risk 20% of the total maximum drawdown per trade. For example, with a $4,500 drawdown, this would be $900 per trade. This aggressive approach helps to pass the challenge quickly.

How many trades does it typically take to pass a funded account challenge?

Assuming a 50% win rate and a risk/reward ratio of 3:1, it would typically take around 10 trades to pass the challenge. This includes 5 wins and 5 losses, with a cumulative profit of $9,000 for a 150k account.

What should I do once I pass a funded account challenge?

Once you pass the funded account challenge, the next step is to maintain the account and work toward achieving payouts. To request a payout, you must first meet a buffer profit equal to the maximum drawdown amount before any profits can be withdrawn.

How do I achieve payouts once I am funded?

To request a payout, you need to achieve 1.5 times your maximum drawdown in profits. For example, if the maximum drawdown is $4,500, your profit target would be $6,750, of which $4,500 would be your buffer. Only profits above that buffer can be withdrawn.

How do I scale funded accounts over time?

To scale funded accounts, you should focus on adding one account at a time after each payout. Use the profits from one funded account to fund the next challenge. This slow and steady approach avoids the risk of scaling up too quickly and failing.

How should I distribute the profits from my funded accounts?

The recommended approach for distributing profits is the 50/30/20 rule: 50% of profits go towards funding personal accounts, 30% towards investments (stocks, property, etc.), and 20% towards spending or saving.