Forex Funds

What is a Forex Fund

Many prop firms state upfront that they are merely providers of trading tools and educational simulations for traders only and never send any orders directly to the market. We do not accept customer deposits as part of our service, and we will not provide any investment advice or recommendations.

These prop firms register their companies under the laws of their respective countries. However, there are no specific regulatory agencies overseeing them strictly, and most prop firms use licenses under various Forex brokers.

Additionally, some prop firms like FTMO clearly state that they are not financial institutions and do not provide any financial services. They trade using their own fund capital, supported by their capable funded traders (this sounds like anyone who wants to apply must accept that you voluntarily enter their competition arena and must play by their rules to win).

If we look superficially, fund challenges may seem good. But everything has pros and cons. Let’s look at the advantages and disadvantages of funds.

Advantages of Fund Challenges

1. Low investment, high returns:
   • This is definitely a major advantage for traders because you only pay a few hundred USD in application fees, but if you pass the challenge, you get tens or hundreds of thousands in capital to trade and make profits easily. If we calculate roughly, if a trader can make 5% profit per month, that means the trader will have at least 175,000 baht in their pocket (5% of $100,000 equals $5,000), which is enough to attract many traders to join fund challenges.
2. Gain new experience and knowledge:
   • To pass a fund challenge, there are 2 important things traders should adjust: trading strategy and trading mindset.
   • Trading strategies for funds usually focus on risk control or keeping drawdown below 5-10% while still making at least 5% profit. This means traders who are willing to take high risks have less chance of passing this stage. Strategies might be scalping or trend following, etc.
   • Trading mindset for fund challenges must always emphasize risk control and eliminate greed as much as possible (easier said than done). Therefore, traders interested in fund challenges should not miss these two important aspects.
   • Additionally, prop firms provide special support such as training, coaching, professional education, and professional trading tools to traders.
3. Gain reputation:
   • Very few traders can pass fund challenges. It’s like climbing Mount Everest. And of course, “difficult things are valuable” so the certificate that traders pass is an excellent guarantee of skill.

Disadvantages of Fund Challenges

1. Stress:
   • Hope always comes with expectations. That means the higher the expectations, the more pressure there is. And ultimately, it becomes accumulated stress, which affects trading in the end. Therefore, traders should be aware of this point and manage their emotions as best as possible.
2. Being restricted:
   • Since the money that funds give traders to trade is a huge amount, it’s natural that the fund side must set various rules to keep their capital as safe as possible. Sometimes these rules may be obstacles to traders’ trading.
3. Risk of fake slippage:
   • We can understand this because since they don’t send trading orders to the real market or LP, they always have the opportunity to create trading obstacles for us. Whether it’s creating fake slippage, marking up spreads, etc. And the worst thing is faking licenses to trick traders into taking challenges.

Following the incident around September 1, 2023, when the unexpected event occurred that MyForexFund (MFF) shut down, essentially taking money and running away, which can be considered a scammer. But if even a large fund like MFF can run away, how should we choose fund challenges?

1. Credibility
   • We can see credibility from the establishment age of the prop firm, then look at the regulated license, which is admittedly quite difficult to find information about. If you can’t find it, look mainly at reviews. There are many review sources, but the internationally credible one seems to be Trustpilot. We at eaforexcenter have also tried to create better reviews to compare with world-class standards.
2. Challenge Program
   • The challenge program is important that we need to look at before choosing a challenge. Because they have different challenge conditions, some programs don’t allow trading techniques we’re good at, or some programs we think are too difficult and impossible to pass, we should skip them first.
3. Terms and Conditions
   • Terms and conditions are very important. Some prop firms set conditions that are too difficult, making it hard to pass, which is normal for prop firms. But what’s surprising is using rules that make passing challenges too easy like MFF in the past (before suspension). This is something we should avoid applying for.
4. Profit Share
   • Profit sharing is what attracts traders the most. If any prop firm shares too much that seems unrealistic, and has lenient passing criteria, we can deduce that they might intend to scam traders’ application fees.

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