Which is better? – Trading a personal account or trading a funded account with an online proprietary trading firm?
Well, the answer really depends on who you are as a trader. Some traders like to risk a little more than what’s considered “good” on a funded account or like to trade certain market conditions that are frowned upon by certain prop firms. This is a case for “the personal account is the way to go” argument to ensue. You have NO limits and NO rules.
But, does this work for everyone? – Well, in short; no. The great thing about prop firms is they implore rules onto the trader, which if embraced keeps you focused and in check otherwise you’ll be penalized. Think back to when the only option was trading for a private equity fund, brick and mortar prop, bank desks etc. you would have risk managers, account managers, senior traders and so on and so forth all keeping you in check and building your character as a trader.
So is it wise to let a new trader loose with a personal account full of their life savings? – Probably not. The odds are that they will blow that account within record time. Now imagine that trader had someone with experience watching over them and STOPPING them from blowing their account up. That’s your risk manager.
Now how do you get a risk manager to cover 1,000’s if not 10,000’s of traders who are all trading remotely? – Well, to be blunt you can’t. This is why there are set rules, to give the trader criteria that they must adhere to when trading the prop firm’s capital. If you can’t adhere to those rules, your access to the capital will be revoked, just like it would at a brick-and-mortar prop, if you blow up there and take no consideration to risk management.
This is where a lot of traders are confused. They think prop firms are out to get them, but this would be the same and worse if you were trading at a private equity or institutional level. If you’re A-booked and begin losing your grasp on your risk management, that’s a huge risk for any firm to take on and therefore it’s important to protect the capital fronted to allow the trader to execute their size.
On the flipside to this, with a personal account you are much more flexible to do as you please and trade with any risk parameters as the broker isn’t concerned whether you make money or not and therefore won’t email you to tell you to lower your risk etc. they will just get their old friend Margin to give you a Call!
To conclude, there’s no right or wrong answer to this argument and there’s nothing stopping a trader from leveraging their access to large capital through proprietary trading firms whilst scaling their own capital also and taking advantage of both. One thing we recommend highly is utilising your prop accounts to acquire payouts and feeding those payouts into your personal accounts and compounding your equity!
One important piece of advice we have for trading your personal accounts however is to never keep 100% of your capital in a trading account with a broker. Always keep your risk exposure as low as possible, maybe just 10-15% of your capital allocated with any one broker, because if they go under and you lose your capital, at least your risk is minimal, similar to with a prop firm, you can only lose a percentage of your capital (whatever it cost to acquire the account).