In my opinion I would say that most of them are not scams - however - in my opinion
most of them are not good solutions for long term trading capital and making a living trading using their funding primarily due to the fact that most of them use trailing max drawdowns
Let me give you an example which will clearly illustrate
You have a trading account with one of the better known name brand funding firms - you passed their $150K trading combine/challenge and now you have a funded "$150K" trading account (which lets face it--in reality its not an account that the funding company has deposited $150,000 cash into)
On your "funded acct" your daily loss limit is $3,000 and your trailing max drawdown is $4,500
Now here is how a trailing max drawdown works with many of these companies VS reality in the real world which is a "fixed" max drawdown.
Example 1 - funding company A that you have the $150K "funded acct" with that has the $3,000 daily loss limit and $4500 trailing max drawdown.
You start trading day 1 in this funded acct and in the morning by 11am you have closed out positions resulting in a realized $2,000 profit
The way many of the companies operate is that now your account is plus $2,000 above the zero line - however since you have a "trailing max drawdown" of $4,500 you know can only go $2,500 below the zero line for the rest of that day (not $3,000 and not $4,500) because
the $4500 trailing max drawdown is calculated now from the $2,000 profit - not the zero line
Now lets make matters even worse - some companies even calculate the trailing max drawdown from your highest P&L from the day--even if it was "unrealized" - what does that mean? Here is an example:
Funding Company A that you have the $150K "funded acct" with that has the $3,000 daily loss limit and $4500 trailing max drawdown.
You start trading day 1 in this funded acct and in the morning by 11am you have closed out positions resulting in a realized $2,000 profit---however--- you didn't get out at the high of your positions and at one time that morning your positions were actually up $4,000 but you thought it was going further in your favor and unfortunately it didn't and when it started going back down you decided that $2,000 was still go and you closed out all positions at that point with a $2,000 profit--however--the point is for purposes of this example--that you could have gotten out with a $4,000 profit. The way that some of these companies operate the rules on their "trailing max drawdown" is that they mark the high point of
your day whether it was realized or unrealized and then they calculate your bottom from that--so in the case here where you were up $4,000 but chose to get out when you were up only $2,000
--guess what???
now your $4,500 trailing max drawdown is calculated from the plus $4,000 point
which means that after you closed out your positions for a $2,000 profit --now your trailing max drawdown will only allow you to go down to $500 below the zero line - meaning in reality now you only have $2,500 in drawdown to go
Getting Paid your profits--what it is really all about--
Lets face it - trading at times can be very time consuming and stressful so at the end of the day its really all about making your profits and getting paid so you can support yourself and your family and it can be nice if you have a funding partner that gives you true revolving funding that lets you make a living using their money and they get a good return and you get revolving funding that allows you to use your trading skills to earn a living. But is that what the companies that use "trailing max drawdowns" really provide??? In my opinion - they only provide a very short term , short lived solution for the trader and they do not provide (in my opinion) long term mutually beneficial revolving funding. The reason for my opinion is that the way many of these companies operate their "funded accounts" that have a trailing max drawdown is as follows:
Lets go back to the above example - you have passed the $150K challenge and you now have a $150,000 "funded account" that has a $3,000 daily loss limit and a $4,500 trailing max drawdown. Many of these companies have a rule that once your profits exceed the trailing max drawdown that your drawdown is then eliminated and your true "funding" at that point is just the difference between the profits in your account and the zero line.
Another thing to keep in mind is that some companies base this rule on both "unrealized" and/or actual "realized" closed position profits and some companies just use "realized" closed position profits only for this rule---check the fine print
So as as an example if you made $4,500 profits in the first week of trading with your new funded account and your trailing max drawdown is $4,500 then now your trailing max drawdown is eliminated and you now only have the zero line-so if you withdraw all $4500 in profits (they take their applicable cut of the $4500 and send you the rest) but guess what--you just screwed yourself because now there is nothing left and they no longer provide a max daily loss or a trailing drawdown and so now your account is closed. And to make matters even worse---going back to the "unrealized profits" scenario we point out earlier---lets say on day one your unrealized profits were $4,500 and your closed profits were $2,000 - guess what? With some companies because your unrealized profits of $4500 for that day were equal to or exceeded your trailing max drawdown of $4,500- your trailing max drawdown is now eliminated and now you cannot go below the zero line either --so essentially even though you only have $2,000 in realized profits in your account and your account is plus $2,000 above the zero line - if you withdraw that $2,000 you are officially done and your account is closed.
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Now lets compare this to the real world and also compare it to funding companies that offer fixed max drawdowns
1) Funding Company B that offers a fixed max drawdown ----not trailing. As an example there is one company in the funding world that has a $100,000 challenge acct that has a $5,000 max daily loss and a $10,000 max overall drawdown.
You pass the $100,000 challenge with them and get your funded account with the same parameters --
a $5,000 max daily loss and a $10,000 max overall drawdown.
Now lets take the same example above of a good day 1 trading day in the funded account and by 11am you had positions that were as profitable as $4,000 in unrealized profit but you closed them out with a $2,000 profit so now you are plus $2,000 for the day
With a fixed drawdown system - now you actually have for the rest of the day a $7,000 max permitted daily loss for that day and now you have a max fixed drawdown of not $10,000 but $12,000 because with this type of system it is more like the real world and real funding.
Also under this fixed drawdown system you can actually withdraw all of your profits to zero and then the next day still have your complete starting max daily loss of $5,000 and $10,000 max fixed drawdown available again just like at the start - unlike the trailing max drawdown companies
Getting Paid your profits--what it is really all about--
Lets face it - trading at times can be very time consuming and stressful so at the end of the day its really all about making your profits and getting paid so you can support yourself and your family and it can be nice if you have a funding partner that gives you true revolving funding that lets you make a living using their money and they get a good return and you get revolving funding that allows you to use your trading skills to earn a living.
So what is the experience with Funding company B in getting paid ?
They dont penalize you and close your account if you withdraw all profits to $0 - they let you continue trading the next day with your full max daily loss limit of $5,000 and full max drawdown limit of $10,000 completely intact
