Welcome to Smart Money Diaries. I created this blog with the idea to help others in the beginning of their journey as traders.
When I started trading I struggled with finding what is helpful for me in the endless sea of information these days. I had to search for hours trying to find something that could improve my trading skills. And believe me, very few of those sources was actually helping me getting the results I wanted.
One day I decided that I will create something that will be used from all people like me – beginner traders, during their first steps in this difficult process. A safe space, where people with very few skills in trading could find something that they might actually implement in their trading journey.
So, this is my blog – from a trader to all fellow traders!
Trading with a funded account has become an increasingly popular choice among traders, especially those looking to minimize risk while accessing significant capital. Funded accounts, typically provided by proprietary trading firms, allow traders to manage a firm’s capital rather than their own, earning a share of the profits. While this model has clear advantages, it also comes with its own set of drawbacks. Below, we explore the positives and negatives of trading with a funded account to help traders make an informed decision.
Positives of Trading with a Funded Account
Access to Larger Capital: One of the most significant benefits of funded accounts is access to larger trading capital than most retail traders can afford. This allows traders to execute strategies that require higher margins or aim for smaller percentage gains that are magnified due to the larger position sizes.
Reduced Personal Financial Risk: Since traders are using the firm’s capital, their personal funds are not at risk. This can reduce stress and help traders focus on their strategy rather than worrying about depleting their savings.
Structured Trading Environment: Many proprietary trading firms offer structured programs with guidelines, risk management rules, and even mentorship. This disciplined approach can be beneficial, especially for traders who struggle with self-regulation.
Profit Sharing: While traders share their profits with the firm, the profit split can still be attractive, often ranging from 50% to 90%, depending on the firm and the trader’s performance.
Skill Development: To qualify for a funded account, traders usually have to pass an evaluation or demonstrate consistent profitability. This process encourages skill development and accountability, making traders more disciplined and systematic.
No Long-Term Commitment: Most funded account programs are flexible, allowing traders to withdraw their profits and move on if they find the arrangement unsatisfactory.
Negatives of Trading with a Funded Account
Strict Rules and Limitations: Funded accounts often come with stringent risk management rules, such as daily loss limits, maximum draw downs, and position size restrictions. Violating these rules can result in the termination of the account, regardless of overall profitability.
Profit Splits: While profit sharing is a benefit, it can also be a drawback for traders accustomed to keeping 100% of their earnings. The split means that traders must generate higher profits to achieve the same net income they would with their own capital.
Evaluation Fees: Many proprietary firms charge fees for their evaluation processes, which can add up if a trader fails multiple times. These fees can be a barrier for those with limited funds.
Pressure to Perform: The structured nature of funded accounts can create pressure to meet performance metrics, potentially leading to stress and impulsive trading decisions.
Limited Autonomy: Trading with a funded account often means adhering to predefined strategies or restrictions. This can be frustrating for experienced traders who prefer more flexibility in their approach.
Unrealistic Expectations: Some traders enter funded account programs with the misconception that success will be easy or guaranteed. The reality is that consistent profitability requires skill, discipline, and effort, regardless of whose capital is being traded.
Conclusion
Trading with a funded account offers a unique opportunity for traders to access significant capital while minimizing personal financial risk. However, the model is not without its challenges, including strict rules, profit-sharing arrangements, and potential fees. Aspiring traders should carefully evaluate the terms of any funded account program and weigh the pros and cons based on their trading style, experience level, and financial goals. With the right mindset and preparation, a funded account can be a valuable stepping stone in a trader’s journey toward long-term success.
Understanding what type of trader you are is crucial for success in financial markets. Your trading style should align with your personality, risk tolerance, time commitment, and financial goals. Here are the main types of traders and how to determine which one suits you best:
1. Scalper
Scalping involves making quick trades, often within seconds or minutes, to profit from small price movements. Scalpers execute multiple trades daily, requiring a high level of focus, quick decision-making, and a strong understanding of market dynamics. This style is ideal for traders who thrive in fast-paced environments and have time to monitor markets actively.
2. Day Trader
Day traders open and close positions within the same trading day to avoid overnight risks. They rely heavily on technical analysis, charts, and market news to identify daily opportunities. Day trading suits individuals who enjoy analyzing short-term market movements, have a disciplined approach, and can dedicate several hours a day to trading.
3. Swing Trader
Swing traders hold positions for several days to weeks, aiming to capture medium-term market trends. This style requires less time than day trading and focuses on a mix of technical and fundamental analysis. Swing trading is a good fit for those who prefer a balanced approach, combining active trading with more extended holding periods.
4. Position Trader
Position traders focus on long-term trends, holding trades for weeks, months, or even years. They often rely on fundamental analysis, such as economic data, company performance, and geopolitical factors. Position trading is suitable for individuals with patience, a long-term mindset, and the ability to withstand market fluctuations.
5. Algorithmic Trader
Algorithmic traders use computer programs to execute trades automatically based on predefined criteria. This style is ideal for those with a background in coding, quantitative analysis, or data science. Algorithmic trading eliminates emotional decision-making and can be highly effective in fast-moving markets.
How to Determine Your Trading Style?
To find the right trading style, assess your personality, available time, and risk tolerance. For example, if you’re patient and prefer minimal involvement, position trading might suit you. If you enjoy rapid decision-making and thrive under pressure, scalping or day trading could be better options. Experimenting with different styles in a demo account can also help you decide.
Conclusion
Your trading style is a reflection of your unique strengths and preferences. By understanding the type of trader you are, you can develop a strategy that aligns with your goals and increases your chances of long-term success.
Choosing the right asset to trade is a critical step in the beginning of your trading journey. With countless options such as stocks, Forex, cryptocurrencies, commodities, and indices, the decision can feel overwhelming. However, by considering key factors and aligning your choices with your goals and expertise, you can make an informed decision. Here’s how to go about it:
1. Understand Your Trading Goals
The first step is to clarify your objectives. Are you aiming for short-term profits, long-term growth, or diversification? Day traders, for instance, may prefer trading with high volatility assets, such as Forex or cryptocurrencies, while long-term investors might lean toward stable stocks or indices. Aligning your asset choice with your financial goals will ensure you stay focused and reduce unnecessary risks.
2. Assess Your Risk Tolerance
Different assets come with varying levels of risk. Cryptocurrencies and small-cap stocks are highly volatile and can yield significant returns, but they also pose higher risks. That’s why they are preferred assets for those traders that seek higher returns within a short period of time. On the other hand, stocks and indices are relatively stable but may offer lower returns. Assess your risk appetite and choose assets that match your comfort level.
3. Evaluate Market Knowledge
Trading successfully requires a good understanding of the chosen market. For example, Forex trading demands knowledge of currency pairs and global economic indicators, while trading commodities requires insight into supply-demand dynamics. Choose an asset you are familiar with or willing to study in-depth.
4. Consider Liquidity and Volatility
Liquidity refers to how quickly you can buy or sell an asset without significantly affecting its price. High liquidity assets, like major currency pairs or large-cap stocks, are ideal for traders seeking quick transactions. Volatility, on the other hand, indicates how much an asset’s price fluctuates. If you thrive on rapid price movements, assets with higher volatility may suit you.
5. Analyze Costs and Accessibility
Trading costs, such as spreads, commissions, and fees, vary across assets. Additionally, consider the accessibility of the asset—some markets, like Forex or cryptocurrencies, operate 24/7, while others follow specific trading hours. Opt for assets that fit your schedule and budget.
6. Test and Refine Your Choice
Before committing significant capital, test your preferred asset in a demo trading account. This allows you to practice and refine your strategy without risking real money.
Choosing the right trading asset is a personal journey influenced by your goals, knowledge, and risk tolerance. By carefully analyzing these factors, you can select an asset that aligns with your trading style and increases your chances of success.
You can write to me in the comments which is your favorite asset that you like to trade with on a daily basis. Could be any major Forex pair, maybe Bitcoin or gold? I am fan of the gold, but sometimes I treat myself with some indices trading.
