Proprietary trading, often referred to as “prop trading,” involves financial institutions or commercial banks using their own capital to trade financial instruments like stocks, bonds, commodities, or currencies for direct market gain, rather than earning commissions by trading on behalf of clients[1].
Key Points About Prop Trading:
- How It Works: Prop trading desks at financial institutions use the firm’s capital and balance sheet to conduct speculative trades. These trades can involve a variety of strategies, including arbitrage, fundamental analysis, and technical analysis[1].
- Benefits:
- Higher Profits: Institutions can realize 100% of the gains from their investments, unlike client trading which earns only commissions[1].
- Inventory Stockpiling: Firms can build an inventory of securities, providing an advantage in illiquid markets[1].
- Market Making: Prop trading allows institutions to provide liquidity and become influential market makers[1].
- Risks: While prop trading can be highly profitable, it also involves significant risk due to the speculative nature of the trades[1].
Choosing a Prop Trading Firm:
If you’re considering joining a prop trading firm, it’s important to evaluate factors like funding speed, evaluation processes, profit sharing, and trading rules. Some of the top prop trading firms in 2025 include Apex Trader Funding, MyFundedFutures, and Trade the Pool[2].
Would you like more details on any specific aspect of prop trading or information about a particular firm?
References
[1] Proprietary Trading: What It Is, How It Works, Benefits – Investopedia
[2] 7 Best Prop Trading Firms in 2025 (That Actually Pay) – Benzinga