If you are an aspiring trader looking to kick-start your trading career, you have likely heard of prop firms or “funded accounts.” Are they legit? Are they worth it? We covered this topic last year, but in this article, we will explore the benefits of prop firms and funded accounts, shedding light on why they can be a valuable path for new traders. As an experienced trader who has successfully navigated the challenges and passed the Topstep challenge, I will share insights from personal experience, providing you with an authentic perspective. If you want to try the Topstep funding challenge for yourself, you can do so by clicking here.

Access to Capital

One of the primary advantages of prop firms and funded accounts is the access to capital they provide. As a new trader, building up sufficient capital to trade with can be a significant hurdle. Plus, developing traders almost always pay some portion of their account as “tuition” to the markets. It does not matter if you have taken a course or have a mentor - These are both great things, but some lessons will need to be gleaned through experience. Prop firms like Topstep offer traders the opportunity to trade with their capital, eliminating the need for extensive personal funds. This allows you to start trading and gaining real-world experience without risking your own money upfront.

This is especially beneficial if you have a relatively small account. Let’s say you are a developing trader and have less than $10k available to put into a trading account. Rather than churn through that $10k while you develop your skills, you can signup for a funding challenge, churn through a simulator account (while having the potential to get funding) and keeping your $10k.

Risk Management and Support

Prop firms often provide robust risk management tools and support systems to traders. These resources can be invaluable, especially for new traders who are still honing their skills. Topstep, for example, offers risk parameters and profit targets to traders during their evaluation phase. This structure helps develop discipline, risk management skills, and a focus on consistent profitability. Personally, I found that the relatively tight risk parameters that Topstep requires to be a net benefit. Even though I was already a consistently profitable trader (for 5+ years a the time) when I went through the program, I still found that it helped improve my skillset.

Trading Evaluation Process

The evaluation process employed by prop firms serves as a crucial stepping stone. During this phase, traders are given simulated trading accounts and are required to meet specific profit targets and risk parameters within a defined period. The profit targets and risk parameters depending on the “funding size” which usually range from $50k to $150k. Successfully passing the evaluation phase demonstrates your ability to consistently generate profits while managing risk. It acts as a validation of your trading skills and sets you up for success when transitioning to live trading with the firm's capital.

Performance-Based Profit Sharing

Once you have successfully passed the evaluation phase and transitioned to trading with the firm's capital, you can benefit from a performance-based profit sharing arrangement. This means that as you generate profits, you will receive a share of those profits. This arrangement aligns the interests of the trader and the firm, fostering a mutually beneficial relationship. The more successful you are as a trader, the more you stand to gain. When I was trading with a funded Topstep account, the profit split was 90/10.

What trading strategies work on a funded account challenge?

When I originally pursued futures trading through Topstep, it was to get a sense of whether or not the SPY and SPX option strategies I was trading would be a direct translation into futures. I was using purely directional long calls or long puts strategies, so the expectation was that it would work the same. The Topstep program helped me prove that. The strategies that I was using on a daily basis with SPX options worked even better on ES futures because of the entry and exit precision that futures offer. Simple approaches such as the ORB strategy and intraday reversals work well with futures trading. If you want to learn more about the strategies that regularly use, check out our trading education offerings.

Conclusion

Prop firms and funded accounts can be an excellent path for new traders seeking to enter the world of trading without significant personal funds. The access to capital, risk management tools, support systems, and performance-based profit sharing make these arrangements worth considering. It is far easier to trade other people’s money than it is to grow your own account from scratch. Personal experiences with prop firms like Topstep, such as passing the trading evaluation, highlight the potential for success through this avenue. Remember, trading is a skill that requires continuous learning and improvement, and prop firms are a small part of that journey.

So, if you're an aspiring trader eager to jumpstart your trading career, prop firms and funded accounts could be the stepping stone you need to turn your passion into a profitable profession. To learn more or sign up for Topstep, click here.