What Is Proprietary Trading?

Proprietary trading, commonly known as prop trading, is when a financial firm uses its own capital to trade stocks, forex, cryptocurrencies, futures, or other financial instruments for direct profit. Unlike traditional brokerages that earn revenue through commissions on client trades, proprietary trading firms aim to profit from market movements using internal strategies and funds.

In prop trading, the firm is both the investor and the beneficiary. This approach allows firms to take full advantage of market opportunities without the constraints of client instructions. To manage risk and maximize returns, prop firms typically develop advanced trading systems and often employ or fund skilled traders.

These traders are given access to the firm’s capital, software, and support in exchange for a share of the profits they generate. It’s a performance-driven model where success benefits both the trader and the firm.