Funded vs. personal accounts

There are two broad ways a beginner ends up trading futures with real stakes: opening a personal account with a futures broker using your own money, or joining a firm-funded program after passing an evaluation (Lesson 11). Neither is “the right one.” They carry different risks, costs, and rules. This lesson lays out the tradeoffs so you can think it through for yourself. It is not advice on which to choose.

The personal account

Where your money sits

A personal futures account is held at a futures commission merchant (FCM). The CFTC’s glossary describes an FCM, in short, as a firm that takes orders to buy or sell futures and accepts money from the customers whose orders it takes. (Your account may also be opened through an introducing broker; Rule 1.55 names both FCMs and introducing brokers as firms that must give you the risk disclosure before opening an account.)

The NFA’s investor guidance says brokerage firms doing futures business with the public must be registered with the CFTC and be NFA members. Runner Lesson 13 showed you how to check a firm on NFA BASIC before sending money.

Protections, and their limits

The CFTC requires customer money for exchange trading to be segregated: kept apart from the FCM’s own money, in accounts titled for the benefit of customers. If an FCM fails, segregated customer funds get priority in the bankruptcy, though the CFTC notes that if they fall short, customers share in what is left with the firm’s other creditors.

The required risk disclosure statement (Rule 1.55) is honest about the limits:

• Customer money is pooled with other customers’ money, not held in a separate account just for you, and you can be exposed to losses caused by other customers if the FCM lacks the capital to cover them.
• The funds are not insured if the FCM goes bankrupt, and generally not guaranteed by the clearing house either.

The tradeoffs

Upsides

• Your rules. You set your own risk per trade, daily limit, and hours, within your broker’s margin requirements.
• Your profits. Gains in the account are yours (after commissions and fees).
• No evaluation. No profit target to hit, no trailing drawdown to watch, no consistency rule.

Downsides

• Your money at risk, and more. The CFTC’s risk disclosure warns you can lose your whole deposit and more. The CFTC’s beginner page says many individuals lose all of their money speculating in futures.
• Margin calls. If the account falls too low, you must add money or be closed out (Runner Lesson 8).
• No one enforces discipline but you. There is no firm to stop you at a loss limit. Lesson 7’s rules only work if you keep them.
• Account size. The NFA advises trading only with risk capital, money you can afford to lose. That may limit how much you can put in.

The firm-funded program

What it is

In a funded program, you trade under a private company’s rules after passing its evaluation, and share profits under the terms of its agreement. As Lesson 11 stressed, the rules are the firm’s own, they vary from firm to firm, and they can change.

This is a contract with a company, not a customer account at an FCM. The protections described above are what the CFTC describes for customer accounts at FCMs. Do not assume the same apply to a firm’s program: read its agreement to see exactly what it is, what you can lose, and how and when you get paid.

The tradeoffs

Upsides

• Less money up front. Instead of depositing trading capital, you pay the firm’s fees (evaluation, resets, activation). Check the agreement for exactly what you could owe.
• Built-in enforcement. The firm’s loss limits close the account if you break them. Some traders find hard outside rules helpful.
• Larger size than your own money might allow, within the firm’s size limits.

Downsides

• Fees add up. Repeated evaluations, resets, and activations cost money whether or not you ever get paid.
• The firm’s rules, not yours. A trailing drawdown can end an account during a normal pullback after a good run (Lesson 11).
• Profit share and payout terms. You keep only the share the agreement gives you, on the firm’s schedule and conditions.
• Rules can change, and the account exists only as long as the firm and the agreement do.

Questions to ask yourself

• Can I afford to lose the money at stake, whether that is a deposit or fees?
• Do I keep my own risk rules without someone enforcing them?
• Have I read the full agreement or account documents, including the risk disclosure?
• Have I checked the broker on NFA BASIC, or read the firm’s current rules pages myself?

Key ideas

• A personal account sits at a CFTC-registered FCM; customer funds must be segregated from the firm’s own money, but they are pooled with other customers’ money and not insured.
• In a personal account you can lose your deposit and more, but you set your own rules and keep your profits.
• A funded program is a contract with a private firm: costs are mainly fees, but the firm sets the rules, the profit share, and can change them.
• Neither is automatically better. Read the documents, check registration, and only risk money you can afford to lose.