How do Funded Traders Make Money？

In the diverse and dynamic foreign exchange trading market, various trading roles play crucial parts. Understanding the differences between individual forex traders and funded traders, as well as the requirements and prospects for funded traders, is essential for anyone interested in this field. This article will delve into these aspects, exploring the nuances of each trading role and providing valuable insights into the world of forex trading.

What is a Funded Trader?

A “Funded Trader” refers to a trader who conducts trades in financial trading markets such as forex and stock markets with the financial support provided by an institution (such as a proprietary trading firm, hedge fund, etc.).

Funded Traders vs. Retail Traders

Individual traders work for themselves and use their own funds for trading. A salaried trader refers to a person who uses the funds or capital of others or an organization to trade in financial markets and receives compensation in the form of commissions, a percentage of profits, or other contractual rewards.

Salaried traders also include full-time employees working in relevant departments (proprietary trading) and those who represent companies and trade on stock exchanges at the expense of the company's capital.

There are advantages and disadvantages to both funded traders and individual traders, which should be considered when choosing a forex trading method:

Pros and Cons

How to Become a Funded Trader?

Application and Review Process

Generally, an application needs to be submitted to the sponsoring institution. The application materials usually include personal trading resume, trading strategies, and past trading records. The institution will evaluate and filter these materials to determine whether the applicant has the potential to be a funded trader.

Professional Skills Requirements

Applicants are typically required to possess certain trading experience and professional knowledge. They should be familiar with the trading rules and operating procedures of relevant markets and master basic technical analysis and fundamental analysis methods.

Risk Control Ability

Since the funds used are provided by the sponsor, funded traders must have good risk control awareness and ability. They need to be able to reasonably set stop-loss and control positions during trading to ensure the safety of funds.

How does Funded Traders Make Money?

Capital Support

Institutions provide funded traders with a certain amount of capital for trading operations in the foreign exchange market or other financial markets. The amount of capital varies depending on the institution and the specific cooperation method, ranging from tens of thousands of dollars to millions of dollars.

Profit Distribution

Both parties will agree on a profit distribution plan in advance. A common model is that after deducting certain costs (such as trading fees, etc.), the funded trader shares the trading profits with the sponsoring institution at a certain ratio. For example, 70% of the profits go to the trader and 30% to the sponsoring institution.

Trading Supervision

The sponsoring institution may supervise and manage the trading activities of the funded trader to a certain extent to ensure that the trading behavior complies with the overall strategy and risk control requirements of the institution.

What Affects the Income of Forex Traders?

Among the main factors affecting the market income of forex traders, experts from WikiFX emphasize the following points:

Deposit Amount

The amount of initial capital plays a crucial role in determining a trader's earnings. The more you deposit, the larger the position size can be, and the greater the opportunities for risk management.

Leverage

Leverage allows traders to increase their purchasing power by utilizing the borrowing funds of brokers. High levels of leverage can increase potential profits but also increase the risk of losses.

Currency Instruments Used

Different currency pairs have different volatilities, spreads, and liquidity, which affect a trader's potential earnings. Some currency pairs have price behaviors that are easier to predict, while others may carry greater risks.

Trading Strategies

Choosing and effectively applying trading strategies is crucial for a trader's profitability. This includes selecting appropriate time frames, indicators, analysis methods, and risk management.

Psychological and Disciplinary Factors

A trader's emotional state, confidence, patience, and discipline affect decision-making and the execution of trading plans. Lack of emotional control can lead to wrong decisions and losses.

Economic Events and News

Economic indicators, news, and events affect exchange rates and market dynamics. Analyzing and predicting market reactions to such events is an important skill for successful traders.

Education Level and Experience

Education and experience in financial markets play an important role in successful forex trading. The more knowledge and experience a trader has, the more effectively they can analyze the market and make decisions.

Technical Infrastructure

Fast and stable network connections, high-quality trading platforms, and access to the latest market information are important factors for successful trading. Continuous market access and delay-free trade execution affect trading results.

How Do Traders Make Money?

Forex traders mainly make money through the following common ways:

Buying Low and Selling High (Going Long)

This is the basic way to profit in forex trading. When a trader expects the base currency in a pair (e.g., EUR in EUR/USD) to appreciate against the quote currency (USD), they buy the pair first and sell it later when the price rises.

For example, if a trader buys one lot of EUR/USD at 1.1000 and sells at 1.1200 (excluding costs), the profit is (1.1200 - 1.1000) × 100,000 = $2,000.

Selling High and Buying Low (Going Short)

On the other hand, when a trader expects the base currency to depreciate, they borrow and sell the pair first, then buy back to return it when the price drops.

If a trader sells one lot of GBP/USD at 1.3000 and buys to close at 1.2800 (excluding costs), the profit is (1.3000 - 1.2800) × 100,000 =$2,000.

Carry Trade

Traders borrow a low-interest-rate currency, convert it to a high-interest-rate one for investment (e.g., depositing in a high-interest country's bank), and earn from the interest rate spread, considering exchange rate fluctuations.

For instance, borrowing yen (low rate) and converting to Australian dollars (high rate) for deposit. If the yen-AUD exchange rate is stable, traders earn the spread.

Arbitrage Trading

Exploiting price differences between different markets or instruments. Traders buy low in one place and sell high in another.

If EUR/USD quotes differ, e.g., 1.1010 on Platform A and 1.1020 on Platform B, traders can buy on A and sell on B, closing positions when prices converge for profit.

Forex Option Trading

Options give the holder the right (not obligation) to buy/sell a certain amount of forex at a set price before a specific date. Traders profit by correctly predicting trends.

A trader buys a call option on EUR/USD with a strike price of 1.1000 and pays a $500 premium. If the rate rises to 1.1200 at expiration, they exercise the option, buy at 1.1000, sell at 1.1200, and make a profit after deducting the premium.