The trading evaluator model earns money in any of these situations:
- someone takes an evaluation and fails
- someone fails an evaluation and pays to reset the evaluation
- someone passes an evaluation and trades profitably
- someone passes an evaluation and blows up their account
If you pass and get a funded account, typically you’ll be told that you’re “trading our money”. All of these companies will take a share of your funded account’s profits (typically 20%) and some will offer a “no split” amount where you keep it all, such as the first $5k in profits.
If a trader is very good, they may indeed be trading the evaluator’s money, so the evaluator is taking a profit share. Some (in reality most!) evaluators keep the trader in a simulated account even once they are trading what’s described as a “funded” account!
Long Story Short… This Is A Brilliant Business Model. Why?
- most aspiring traders believe they can enter this incredibly difficult venture and be wildly successful immediately
- then they fail a test and get on the hamster wheel. Why? It’s less financially painful than blowing up a real account and now they have something to prove To themselves? To the evaluator? $10,000 in evaluation fees later, they may gain their $3,000 drawdown funded account 😈😈
- many people that achieve a funded account quickly blow it up – they hit the maximum daily loss; the maximum loss allowed on the account or break a rule. In these circumstances, the evaluator has not had to pay out any actual money
- only the small percentage of traders that can make money consistently may ultimately be trading the evaluator’s real account
Let’s look at some metrics that are publicly available on one evaluator’s website:
- Withdrawals made by funded traders during 2021: $3m
- Based on their 80:20 trader:evaluator profit split and a “first $5k has no split” terms, the reality is many of these withdrawals will have had no profit share with the company…
- …but for the benefit of the example, let’s imagine all of the $3m withdrawals were subject to the 80:20 split, i.e. $3m represented 80% profit to the traders
- $3m ÷ 80% means the total profit generated by traders was $3.75m…
- of which the evaluator received 20%, i.e. $750k
Meanwhile, this company’s website:
- describes its team as a “diverse group of 60+ in a loft in downtown Chicago”
- average US salary is approximately $50k. Multiply by 60 employees and that’s $3m…
📝 So… profit share from the activity of funded traders clearly doesn’t cover the costs of this evaluator’s business. What does? Evaluation fees!
⚠ Are you – today – in the minority of aspiring retail traders that are able to make money within tight risk parameters on a consistent basis?
Be honest with yourself about your chances, and be prepared to work extremely hard if you plan to continue forward.