Prop trading, also known as funded trading, involves paying for a performance-based challenge or evaluation. This typically consists of two phases, depending on the specific challenges. Once you have passed the challenge, you are able to earn up to 80% of the earnings in the live simulated account. Read on to learn more about risks and opportunities.
Understanding the Earning Potential
The first thing that you might want to know is related to what might happen if you fail the challenge. You have an evaluation fee that you pay for the challenge size. You have various account sizes to choose from, such as $10,000, $25,000, $50,000, and $100,000. The difference between the various account sizes is that it is literally how much you can make and how much you are trading with.
In terms of the percentages and the challenges, they are all the same. The only difference between the pricing is the account size and the amount of money. It will cost more than $100,000 because you can make more money on $100,000 than you can earn on $10,000.
Understanding the Risks and Rewards of Prop Trading
Trading with prop trading firms comes with risks and opportunities. For instance, traders go through performance pressure. As a prop trader, if you fail a challenge or fail to meet the requirements, you will lose access to trading capital. However, the key is to pave the path to rewarding opportunities with proven prop trading strategies. Additionally, sticking to a trading plan can increase your chances of earning substantial profits.
Accessibility Equals Opportunity
With an instant funding prop firm, you get to leverage accessibility to immediate funding. Suppose you compare the instant funding prop firms to the conventional prop firms. In that case, you will see that the traditional ones often require extensive evaluations and extensive wait times, which is a disadvantage if you are looking to win funds and generate income.
Once you start getting consistent payouts, you will start generating enormous income in the form of profits. Your opportunity to secure rewards will increase; however, before making a trading decision, it is equally important to evaluate what matters to you.
Risk Management in Prop Trading
If you have just started prop trading, you might want to stick to the standard risk plan, which comes down to basic trade rules. For instance, according to the ten trade rule, which is very simple, you will be statically risking $1000 per trade irrespective of whether you win or lose. You will always be risking $1000.
The underlying reason for doing so is that it will make your trading life easier. If you win, you win $2000. If you fail, you fail the account without wasting too much time trying to get out of the drawdown.
Conclusion
To boost your rewards and decrease your potential risks, you must focus on the right position sizing at the time of determining the suitable amount of capital that you are willing to risk on each trade. This is your best strategy to avoid catastrophic trading losses and establish long-term success.
