Many people don’t know that if you are a good, or potentially good trader, especially in forex, there’s plenty of money available to you to properly fund your account, writes CBOT veteran Jeff Wecker. Look for more Trading Lessons every Friday on MoneyShow.com.
First, you should be aware that there are generally two ways that you can get funded: one is where you pay a fee to go through an evaluation period (outlined below) and then you are funded with no outlay on your part.
Another method is that you put up matching funds with the company funding you.
Many of my forex students have used these vehicles to take their talent for trading and propel themselves to very high-performance levels. After all, you do need a good size account if you are going to diversify and also be able to absorb a trade slump. It is known that there’s a 25% chance that you might lose seven trades in a row, so deep pockets are advisable.
So how do these funding programs work? Well, they are all different but let’s take a look at a typical program.
Usually to qualify for about a $40,000 account size (and ultimately an unlimited account size), you must successfully complete an evaluation period with a smaller account size (perhaps $10,000). This is to ensure that you can manage your risk properly (using proper stop loss discipline) and that you can cut your losses and let your profits run.
The maximum drawdown is normally 4% in this first phase (generally 10% in future phases) and you normally have to complete about 40 trades with about a $600 profit target and ensure a maximum exposure not to exceed contracts totaling say $50,000 at any one time.
Typical one-time fees for this type of evaluation account are usually in the area of $700. Also, you usually have to trade for at least 20 trading days and complete the process within about 6 months.
In most cases you are also limited to the seven USD pairs. This is to give you the best chance to succeed given that these pairs are the most liquid and have the least amount of slippage in a fast market.
The great news is that upon completion of these evaluation periods, you normally qualify to trade a fully funded account in the area of say $40,000. At that point you are usually allowed to expand your trading activity to the forex majors and their combinations: USD, EUR, GBP, JPY, CHF, AUD, NZD and CAD.
As you continue your trading, you usually have to maintain a drawdown level not to exceed 10%.
When you achieve a profit of 10% in the account, you can, in some programs, automatically double your account size to say $80,000.
As you can see, the trading capital can dramatically increase as your profitability increases. For every 10% of profitability, the account size usually doubles. If you are successful over time, you can be trading in excess of $1 million. In most programs, you are entitled to 50% of the profits you generate payable at the end of each month.
So, if you’re high on talent but low on capital, these types of programs might work for you.
The Currencies, Coffee and Croissants group is open to all traders interested in currencies. Just contact Jeff Wecker here to join CCC.
