Glossary
Proprietary Trading Firm
A proprietary trading firm (or “prop firm”) is a financial company that uses its own capital to trade stocks, bonds, derivatives, or other assets for profit—rather than trading on behalf of clients. Traders at these firms aim to generate returns using firm money, often sharing in profits.
How do proprietary trading firms make money?
They profit by using advanced strategies—like arbitrage, algorithmic trading, and technical analysis—to capitalize on short-term market movements using the firm’s capital.
Do prop traders use their own money?
No. Proprietary traders use the firm’s money to trade, though some firms require traders to contribute a small capital deposit or meet performance benchmarks.
What’s the difference between a prop firm and a hedge fund?
Prop firms trade for their own accounts using internal capital, while hedge funds manage money for outside investors and charge management/performance fees.
Is it hard to get into a proprietary trading firm?
Yes. These firms are highly selective and often seek candidates with strong quantitative, analytical, or coding skills. Some offer training or evaluation programs.
Are proprietary trading firms regulated?
Yes, but less heavily than firms managing client assets. Many prop firms must still register with financial regulators and follow market conduct rules.
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