Proprietary trading

Short description: Practice of trading financial instruments using a firm's own money

Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.[1]

Proprietary traders may use a variety of strategies such as index arbitrage, statistical arbitrage, merger arbitrage, fundamental analysis, volatility arbitrage, or global macro trading, much like a hedge fund.[2]

## Contents

* 1 Structure and operation
* 2 Regulation
* 3 Business models
* 4 Demographics and market trends
* 5 Notable proprietary trading firms
* 6 See also
* 7 References

## Structure and operation

Proprietary trading firms typically allocate capital to traders under defined risk management rules, including position limits, maximum drawdowns, and loss thresholds. Traders are generally compensated through performance-based arrangements, in which profits are shared between the firm and the trader according to contractual terms. Unlike hedge funds, proprietary trading firms usually trade only the firm’s own capital and do not manage external investor funds.[3] As a result, proprietary trading firms focus primarily on internal risk controls and capital efficiency rather than asset gathering or client reporting.

## Regulation

Following the 2008 financial crisis, some jurisdictions introduced restrictions on proprietary trading by banks. In the United States, the Volcker Rule limits deposit-taking institutions from engaging in certain types of prop trading.[4] Independent proprietary trading firms, which do not take customer deposits, are generally not subject to these prohibitions.[5]

## Business models

Proprietary trading can be carried out under several organizational and operational models, including independent trading firms and regulated banks, with differences largely driven by regulation, market access, and risk controls.[6]Retail proprietary trading firms evaluate traders using demo or live accounts before allocating capital. Successful traders are compensated through a profit-sharing arrangement.[7][8]

Other commercial models in the proprietary trading industry are the affiliate sites, whose main model relies on the referral of traders to prop firms in exchange for a commission on challenge purchases. The evolution of this is Propinder [9] that builds on this by adding a profiling engine [10] that connects traders to the most suitable challenges based on their trading style and preferences

## Demographics and market trends

By the mid-2020s, the demographic profile of proprietary traders shifted significantly toward younger generations. The accessibility of remote funding programs and the gamification of trading challenges have driven a surge in participation among Gen Z and Millennials.[11]

## Notable proprietary trading firms

* Akuna Capital
* Citadel Securities
* DRW Trading Group
* Flow Traders
* Global Trading Systems
* Headlands Technologies
* Hudson River Trading
* IMC Financial Markets
* Jane Street Capital
* Jump Trading
* Optiver
* PEAK6
* Quantlab
* Radix Trading
* Susquehanna International Group
* Tibra
* Tower Research
* Tradebot
* TransMarket Group
* Virtu Financial
* XTX Markets

## See also

* Flow trading

## References

1. ↑ Heather Stewart (21 January 2010). "What is 'proprietary trading'?". The Guardian. https://www.theguardian.com/business/2010/jan/21/proprietary-trading-wall-street-banks.
2. ↑ "Proprietary Trading: What It Is & Related Trading Firms". DayTradeTheWorld. 28 September 2020. https://www.daytradetheworld.com/trading-blog/proprietary-trading-your-complete-guide/.
3. ↑ "Prop Trading vs Hedge Funds: What Every Investor Should Know". https://hedgefundalpha.com/education/prop-trading-vs-hedge-funds/.
4. ↑ "Volcker Rule: Definition, Purpose, How It Works, and Criticism". Investopedia. https://www.investopedia.com/terms/v/volcker-rule.asp.
5. ↑ "Factbox: What is the U.S. Volcker Rule?". SEC (U.S. Securities and Exchange Commission). December 10, 2013. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20131210a.htm.
6. ↑ Prudential Regulation Authority (2020). ﻿Proprietary Trading Review﻿ (Report). Bank of England. https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/proprietary-trading-review-2020.pdf. Retrieved 2026-01-21.
7. ↑ "What Is Prop Trading?". InvestingLive. 31 December 2025. https://investinglive.com/Education/what-is-prop-trading-a-beginners-guide-to-proprietary-trading-20251231/.
8. ↑ "Proprietary Trading Guide". https://www.axi.com/int/blog/education/proprietary-trading-guide.
9. ↑ "Propinder - Connecting Prop Firm challenges to your trading experience" (in en). https://propinder.com/.
10. ↑ "Compare Prop Firm challenges based on your trading experience" (in en). https://propinder.com/profiling-survey.
11. ↑ "What is prop trading? How to pass the challenge: Gen Z and Millennial traders". Business Insider. December 2025. https://www.businessinsider.com/what-is-prop-trading-pass-challenge-gen-z-millennial-traders-2025-12.

* v
* t
* e

Hedge funds

Investment
strategy|

| Arbitrage /
relative value|

* Capital structure arbitrage
* Convertible arbitrage
* Equity market neutral
* Fixed income arbitrage / fixed-income relative-value investing
* Statistical arbitrage
* Volatility arbitrage

|

Event-driven|

* Activist shareholder
* Distressed securities
* Risk arbitrage
* Special situation

Directional|

* Convergence trade
* Commodity trading advisors / managed futures account
* Dedicated short
* Global macro
* Long/short equity
* Trend following

Other|

* Fund of hedge funds / Multi-manager

Trading|

* Algorithmic trading
* Day trading
* High-frequency trading
* Prime brokerage
* Program trading
* Proprietary trading

Related
terms|

| Markets|

* Commodities
* Derivatives
* Equity
* Fixed income
* Foreign exchange
* Money markets
* Structured securities

|

Misc|

* Arbitrage pricing theory
* Assets under management
* Black–Scholes model (Greeks: delta neutral)
* Capital asset pricing model (alpha / beta / security characteristic line)
* Fundamental analysis
* Hedge
* Securitization
* Short
* Taxation of private equity and hedge funds
* Technical analysis

Investors|

* Vulture funds
* Family offices
* Financial endowments
* Fund of hedge funds
* High-net-worth individual
* Institutional investors
* Insurance companies
* Investment banks
* Merchant banks
* Pension funds
* Sovereign wealth funds

Regulatory|

* Fund governance
* Hedge Fund Standards Board

* Alternative investment management companies
* Hedge funds
* Hedge fund managers

* v
* t
* e

Financial markets

Types of markets|

* Primary market
* Secondary market
* Third market
* Fourth market

Types of stocks|

* Common stock
* Golden share
* Preferred stock
* Restricted stock
* Tracking stock

Share capital|

* Authorised capital
* Issued shares
* Shares outstanding
* Treasury stock

Participants|

* Broker-dealer
* Day trader
* Floor broker
* Floor trader
* Investor
* Market maker
* Proprietary trader
* Quantitative analyst
* Financial law
* Regulator
* Stock trader

Exchanges|

* Electronic communication network
* List of stock exchanges
* Trading hours
* Multilateral trading facility
* Over-the-counter

Stock valuation|

* Alpha
* Arbitrage pricing theory
* Beta
* Bid–ask spread
* Book value
* Capital asset pricing model
* Capital market line
* Dividend discount model
* Dividend yield
* Earnings per share
* Earnings yield
* Net asset value
* Security characteristic line
* Security market line
* T-model

Trading theories
and strategies|

* Algorithmic trading
* Buy and hold
* Contrarian investing
* Day trading
* Dollar cost averaging
* Efficient-market hypothesis
* Fundamental analysis
* Growth stock
* Market timing
* Modern portfolio theory
* Momentum investing
* Mosaic theory
* Pairs trade
* Post-modern portfolio theory
* Random walk hypothesis
* Sector rotation
* Style investing
* Swing trading
* Technical analysis
* Trend following
* Value averaging
* Value investing

Related terms|

* Block trade
* Cross listing
* Dark pool
* Dividend
* Dual-listed company
* DuPont analysis
* Efficient frontier
* Flight-to-quality
* Government bond
* Haircut
* Initial public offering
* Long
* Margin
* Market anomaly
* Market capitalization
* Market depth
* Market manipulation
* Market trend
* Mean reversion
* Momentum
* Open outcry
* Position
* Public float
* Public offering
* Rally
* Returns-based style analysis
* Reverse stock split
* Share repurchase
* Short selling
* Slippage
* Speculation
* Stock dilution
* Stock exchange
* Stock market index
* Stock split
* Trade
* Uptick rule
* Volatility
* Voting interest
* Yield

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