Is it better to operate with a funded account or own capital?
Many people see trading as a free lifestyle, where you will have financial freedom, time for you and your most desired interests, others see it as a source of additional income and many others see it as a scam; however there is a small group that sees it for what it is, a business, where we can win or lose, where we put a capital at risk for profit or unfortunately, to obtain losses. This capital, in trading we can obtain it in two ways: The first is using a funded account and the second is using our own capital. In this blog we are going to state the pros and cons of each one, and which one would be the most appropriate.
Benefits of trading with your own capital:
Greater motivation
By trading with real capital, you have more motivation to make informed decisions and control your emotions, since your profits or losses will have a direct impact on your finances.
Profitability
By trading with real capital, you can generate significant profits and improve your financial situation.
Improved trading psychology
Trading with real capital forces you to deal with your emotions and improve your trading psychology, which can have a positive impact on your personal and professional life.
Cons of trading with your own capital:
You assume all the risk: Just as all the profits are for you, you must also assume all the risk.
High starting amounts: Depending on your plan and statistics, you must allocate more capital in order to have a healthy account.
However, a funded account is essentially the same, you have a capital to take care of and some challenges to assume. Here are some pros and cons of a funded account.
Benefits of trading with a funded account:
Lower financial risk
When trading with a funded account, the capital used is provided by another person or entity, which significantly reduces personal financial risk.
Access to more capital
By trading with a funded account, you have access to a larger amount of capital, allowing you to trade larger positions and potentially generate more profits.
Increased confidence
Having a funded account can increase your confidence in your trading skills and your ability to generate profits.
Cons of trading with a funded account:
Very strict rules
Being a 3rd party capital, they seek to generate profitability with the least possible loss, so they have very strict parameters to minimize the chances of losses.
Shared profitability: They take a percentage of your profits as a commission and added to certain data access charges, they reduce the real percentage of profit.
Once stated some advantages and disadvantages of each account, let’s imagine that you are a young man coming out of college willing to do anything to have a lot of money, we can take 2 paths, working in a consolidated and stable company or entrepreneurship. The company would be to operate with funded capital, you can perform the activity but risking the capital of others, and if you do not have an optimal performance, then you get fired (they take away your account) or if you do well, it is normal that they give you incentives and / or increases. You can save part of your salary or part of your incentives for when you decide to undertake!
Now, entrepreneurship (trading with your own capital) is where you have to be in charge of the decisions and you have to be constantly learning so that the company runs in the best possible way! that will generate those benefits of that effort, but you are also responsible for the company not to go bankrupt.
This is where your training as a trader and the adaptability of your strategy comes in, how well you know your statistics and if they give you a high probability to pass a funding test, and likewise to trade a funded account. It may be that following rules as such can help you in your life as a trader, but you have to check if the strategy you have can be adapted to the high rigor of the anchor test rules.
For example, if you start your trading with your own capital, 10.000usd, and you make a monthly return of 5%, you would make 500 dollars a month, which being all for you, you have 2 options, either leave it and increase your capital to 10.500usd, or take it out and pay yourself what you make.
Now let’s do the example with a funding test that costs 100 usd, assuming you pass it, you have access to a capital of 25.000usd, assuming you make the same 5%, it would be a total profit of 1250 usd, being a funding test, the company charges you 42% for commission and data costs, that is 525 usd, and for you it would be a total of 725, and if we subtract the 100 usd of initial capital that you paid, it would be a profit of 625 usd. It is worth mentioning that it is easier to get 100 usd than 10.000 usd, however those 100 usd have many rules that can make your operation a little difficult and affect it in a negative way or many times, moreover, in general, you do not pass a funding test in a month, so you will need more than 100 usd to be able to access a funded account.
In conclusion, it all depends on you and your strategy. As we have mentioned in previous blogs, you are the trader and the decision maker. You can play with the alternatives, you can be working and saving up to buy test funding, pass it and start trading with funded account, so you can use the funded account to make more capital and open your own live account, you can simply trade only with funded account, or with your own capital. There is no right decision, each way is different and each trader knows himself, knows his risk and his psychology.
Camilo Chavez
Costumer Succes Lead at Swiset
