We all need to start somewhere. For most, it’s starting on a demo account, risking virtual money while learning the ropes of trading forex. A safe environment where you can make mistakes that won’t sting, safely preparing you for the real thing.
But what happens after the demo account? After all, you can’t make money using it.
How Your Demo Account Trading Helps
Transitioning from a demo account to risking real money can be a big step. Nevertheless, your time practising with virtual money has provided invaluable experiences that prepare you for prop trading.
Using your demo account should have helped build habits that make trading easier. Beginners’ mistakes will have been learned, like avoiding chasing losses or trying to catch sharp reversals (like the Non-farm Payroll). You will have found which strategy works for you and how to set up the charts to make analysing the trades faster.
Not all demo accounts are created equal though. If you’re still shopping around for a broker, sites like BrokersRegulados test different brokers’ demo platforms and tools, which saves you the hassle of trialling each one yourself.
Importantly, you’ll have a track record of your performance, which will give you confidence going into an evaluation period with a prop firm.
The goal of the demo account is to get you consistently trading profitably. When you are at this stage, it’s a good idea for you to search for a prop firm that you can get started with. By achieving steady returns while protecting capital, you’ll be able to consistently pocket a share of the profits.
So where do you go from here? You’ve got two options. You can either put up your own cash or have someone else fund you through a prop firm.
Why Prop Firms Provide An Excellent Next Step After Demo Trading
Prop firms can be seen as a solid stepping stone from a demo account to the real markets. Instead of risking your hard-earned money, you can risk someone else’s. You’ll have to be approved first, which is done through an evaluation period.
To start the evaluation, you have to pay a small fee – this is one of the ways prop firms make money – then pass their test. After passing, you can rent the account for a monthly fee which is small in comparison to fronting your own capital.
Any profit you make from the trading account, you get to keep a share of. So if you make $500, you could keep up to $400 without risking any of your own money. That said, if you fail or don’t meet the requirements, you may not earn a penny.
Let’s say you rent an account for $80 per month for a $10,000 account; your initial outlay is only $80. This is far better than coughing up the full $10,000 to get the same results – especially as a newbie.
Plus, this limits your max loss to $80 if you fail for the month, which is much easier to stomach than a few hundred or a thousand dollars.
Most Common Route To Getting A Funded Account
So getting funded sounds like a solid route to profitable trading with lower personal risk – but how do you get involved?
Well, getting started is easy; getting funded is the hard part. But here’s the good news! All that practice on your demo account will be what gets you through the evaluation.
Here’s a quick snapshot of the route to getting funded.
- Make sure your strategy is consistently profitable by practising on a demo account. When you are confident in your strategy and risk management, you can look at taking an evaluation.
- Find a prop firm. You want to find one that has fair risk rules with a generous drawdown and profit share. You’ll also want to choose a prop firm that uses the products you trade, whether it’s spread betting or CFDs or futures.
- Pass your evaluation with the prop firm. This is a compulsory prerequisite before getting access to your prop trading account. You’ll need to hit a specific profit target (usually 10%) while following the drawdown rules.
- After passing, you will get funded. The prop firm will allocate you the capital you have requested, and you can begin trading. If you are profitable with the account, you will be able to request your share of the profit to your bank account.
While this process isn’t instant, it’s realistic. This route offers a way to profit from your trading skills without worrying about risking your own capital.
Key Things To Consider
Prop firms all fundamentally run the same, but there are some key differences that can make it easier (or harder) to profit.
- Check the payout structure. It’s common for prop firms to have an 80/20 profit split (in your favour), but some go higher once you prove consistency.
- No trading product restrictions. You want to verify if your markets are available with the prop firm, as some may limit the markets available, like GBP/JPY. There is no point signing up to a firm if they don’t offer markets you’re profitable with.
- Does the prop firm allow algo traders? If you use forex AI trading tools, some prop firms may not support them. So it’s important to validate if they do before paying for your evaluation.
- Ease of scaling plans. You might find great success with your current trading account and be tempted to scale up to a larger account. Choose a prop firm that makes it simple for you to progress without any penalties.
Think of your demo account as your practice run. The prop firm evaluation is your actual test. Once you pass, you can start making real money without putting your own capital at risk.
So if you’re consistently profitable on your demo account, there’s no reason to wait. Find a prop firm that fits your trading style and take that evaluation. Good luck!
