Things you didn't know about funding tests
Understanding the details of a funding test can make the difference between winning or losing it. You may be an excellent trader, as you have adapted your plan to pass the test. However, if you make a single mistake in any of the rules, no matter how good you are, you will fail the test along with your money.
There are common characteristics that need to be evaluated:
1. Cost
Each funding test from different funders has a different cost. Personally, you may prefer to choose the most economical one based on the amount they offer if you pass the test. For example, if you want a funded account of $100,000 US, one firm may charge $150 US for the test, while another may charge $100. You can choose the one that best fits your budget. Alternatively, you can decide to acquire a test with a higher cost but easier to pass. When the test has fewer strict rules, it is usually easier to pass.
2. Target performance
Similar to the cost, funding tests can offer different funded values with varying performance criteria. It all depends on the firm from which you purchase the test. That’s why it’s essential to evaluate all the tests before acquiring one. Your trading strategy may generate a $1,000 US return in a month, and there may be tests that fund you based on that performance, while others may not. In that case, you would need to pay for the following month to reach the target.
3. Maximum loss (Drawdown)
We have already discussed drawdown (DD). To add to that, it’s important to pay attention to the type of drawdown each test has. For example, after reaching a specific amount, the drawdown value may remain fixed, or it may be dynamic. When the drawdown is dynamic, let’s say we start with $100,000, and the drawdown is 10%, which is $10,000, but it’s based on our initial value. If we have already increased our account to $105,000, various scenarios can occur. The drawdown may remain fixed at the initial value, or it may give you a dynamic percentage of 20% based on your current value. Alternatively, it may continue to apply the 10% drawdown to your current value. You should always evaluate which option is more favorable to your strategy. Additionally, as an important tip, if your trading plan has a maximum drawdown of 20%, but the test’s drawdown is 10%, you should reduce the leverage of your trades, either in lots or contracts. Otherwise, during a losing streak, you may fail the evaluation.
Characteristics you didn't know about
1. Maximum daily loss
This feature is crucial to avoid failing our test. As traders, we understand that our daily operations cannot exceed a certain value. However, in a funding test, our open trades should also not exceed that value. Personally, something that happened to me was that I read the market very well, and my analysis at the time was correct. However, my entry was premature, and I had a very high leverage. The market temporarily moved against my open trade, reaching the daily loss limit with that trade. Since I was so confident in the future price movement, I didn’t want to close the trade or move the stop-loss closer to the entry point. I thought that once the entry became positive, it would not reach that loss level, and my test would be unaffected. In the end, the trade did become profitable and had a significant movement, but within a minute, I received a notification that I had failed my test. All because the open trade reached the daily loss limit.
2. Maximum lots/contracts
You should read this rule very carefully because if you’re a trader who opens multiple contracts in your trades, you can fail your funding test even if the profitability and risk of your trades are very successful. In some tests, this maximum limit may apply to contracts opened simultaneously, while in others, it may be for daily contracts, etc.
3. Maximum allowed stop-loss
For each trade, we have a stop-loss. Some tests impose restrictions, where if your stop-loss exceeds a certain percentage such as 2%, 3%, 10%, etc., you will fail the test. You must adjust your risk management or trading plan accordingly.
4. Minimum trading days and consistency rule
In terms of consistency, you are not an exceptional trader if you achieve all your monthly gains in just 5 days. It may happen because the market conditions were ideal on those specific days. However, when you trade for months, there will be moments when the market conditions are not ideal, and this is normal. But you should consider it in your trading plan. The minimum trading days rule requires you to have traded for 10, 15, or 20 consecutive days in some cases, while in other tests, it may be the total number of days. This rule evaluates your consistency over time to approve your test. On the other hand, the consistency rule ensures that you do not exceed the maximum daily profit. If the test specifies a maximum daily gain of $500 US, you should not exceed it, or your consistency evaluation will be affected. However, be cautious not to deviate from your trading plan and make decisions that could harm your performance just to meet the test requirements. Such decisions could lead to failing your test.
5. Time restriction
Let’s say you have an open trade with a very good profit, but it has not reached its target yet. However, if you have a time restriction in your test, it means you cannot trade during certain hours, and you cannot leave trades open during those hours either. For instance, if your restricted trading period is about to start in 5 minutes and your trade is significantly positive or negative, close it before you fail your test.
*Each firm has its own schedule and uses UTC time. They will inform you of the restricted trading hours, such as “between 5:00 to 10:00 UTC+2”. You should research the offset corresponding to your location and calculate the corresponding restriction time in your local time. You can refer to a time zone table. To evaluate which time zone applies to your location.
Additionally, there are tools available, such as https://dayspedia.com/time/zones/utc-11/, where you can select the time zone for the restriction and add your country to see the time difference between that country and yours. Personally, I simply check the current time in each time zone and calculate the difference with my local time. The decision is up to each individual.
David Fiat
DevOps Engineer - MLSA - Flutter Developer
