What is Proprietary Trading (Prop Trading)?

What is Proprietary Trading (Prop Trading)?

By Foxhunter | hunter24 | 28 Mar 2020

Proptrading is a type of cooperation / business model in which Proprietary Trading firms make their capital available to outside traders, for trading on the market. Profits made by traders, by using this capital, are then split between a Proprietary Trading firm and a trader. However, a company is the one responsible for the losses, not a trader. Obviously a trader has to pay to Proptrading Firm to make their capital available for trading on the market, and also for access to the market trainings, training materials and an office (or an online office).

Example of Proptrading

For one-time, non-refundable fee of €1000, a Proprietary Trading firm makes 6 x higher capital available for trading on the market. In result, a trader pays €1000, but he is able to trade with, for example, €6250.

This money is a company's capital, so if a trader manages to multiple it while trading - the profit, according to the terms of contract is then split between the two. Bigger part of it goes to the trader and smaller - to the Proprietary Trading firm.

If the trader loses this money - then he won't have to give it back to anyone, because according to the terms of contract, the company is responsible for the loss. Why? Because they took the risk. It is them who decided to participate in the process and they chose the people (traders), who they wanted to cooperate with. Companies decide to do that to strongly diversify their capital, to make it more stable and to protect it against the market fluctuations. Obviously, companies take certain precautions to avoid cooperation with beginners by, for example, allowing them to lose no more that 20% of the capital given to them. If a trader loses this much, then the contract gets terminated, but with no extra charges for the trader.

Using above example, the 20% loss from €6250 capital equals around €1250, and that is just a bit more that what the trader has paid to the company at the first place.

To summarize:

  • The trader buys the access to the company's capital for €1000.
  • He receives €6250. With this amount, he is able to earn much more on forex market, and if he does, he will share profits with the company. But if he doesn't, he will only lose €1000.
  • If he trades on the market on his own - with his deposit of €1000, without buying greater capital from Proprietary Trading firm, then once he loses €1000, it will be the end of the game, account cleared. And he would not have the same possibilities as with the capital of €6250.

How does the company earn?

1. It earns by receiving profits, achieved by the trader. In exchange for the access to the company's capital, the trader agrees to share profits between himself and the company. If he earn €500 on the market: 75% of it will stay with him and 25% will go to the company.

Simple rules.

Everyone benefits from it.

2.Additionally, many Proprietary Trading firm which have been on the market for several years, have formed their own automated trading strategies, for traders, who buy the access to their capital, to make use of. Because of that, they DON'T have to trade themselves, observing charts, ups and downs and so on. They don't have to know technical analysis, makro, indexes, etc. This automated trading strategy is fully automated and works on various currency pairs: EUR/USD, GBP/USD, EUR/JPY, GBP/JPY, USD/JPY, EUR/AUD - wherever the algorithm notices a good opportunity to trade.

Proprietary Trading firms may offer various automated strategies to traders: moderate ones, more dynamic ones, etc. By choosing, for example, few of them, a trader can diversify his income a bit more.


Important: automated strategies may also fail, because there is no such thing on the market like tools, strategies or traders that always win and never lose. It is the same when it comes to automated strategies bought from Proprietary Trading firms. The loss may happen and once it reaches, for example, 20%, the contract with a trader gets terminated (identically as if he was trading the company's capital on his own).

Of course, companies have their strong means of protection, prepared to make sure that their strategies won't bring a rapid loss. For example, algorithms are set to not to let a chosen strategy play with the entire capital available, but only with certain percentage, that allows the loss of maximum 10%. This way, in case of a difficult day on the market, the losses are not too high and the contract with a trader does not have to be terminated.


Advantages of Proprietary Trading/ Proptrading

  • Opportunity to buy the access to higher capital for forex trading, than what we actually have.
  • The chance for young and talented people to enter the market, even if they don't have suitable deposit to earn real profits from professional trading on regulated forex market. Thanks to lower, non-refundable payment, they gain access to higher capital for trading on forex markets.
  • Possibility to use automated strategies, with which you don't have to have any knowledge of financial markets or forex (it saves your time as it won't be necessary to complete daily activities. These strategies earn and work on their own).
    The lack of responsibility for losing the capital we purchased.


Disadvantages of Proprietary Trading/ Prop trading

  • If you decide to buy the access to automated trading strategy from a Proprietary Trading/ Prop trading firm, the downside of it will be that the strategy works on its own and a trader won't need to observe the market, won't learn, won't develop, and in practice, he won't really have to do anything. So, if he wanted to start trading on the market with his own money, he wouldn't manage, as he won't have any experience in trading.
  • If you trade independently, with a broker, you get all profit for yourself, and if you trade with a Proprietary Trading firm's capital, you have to share it (that's how these companies earn). For example, 75% for you, and 25% for them.


Example of a company, which has been on Proprietary Trading/ Prop trading market for years:

Company Name: Properly Proptrading

The cost of the access to the system and the company's capital:

  • MINI €1000 (introduction, automated investment strategy, access to capital of: €6250)
  • STANDARD €2000 (introduction, automated investment strategy, access to capital of: €12500)
  • MAX €4000 (introduction, automated investment strategy, access to capital of: €25000)

The number of automated strategies: 5 (less and more dynamic)

Contract with a trader: Yes

Estimated, annual profit from the use of automated strategies: 25-75%

Profit withdrawals: EUR, only bank transfer

Minimum withdrawal: after reaching 1% profit from available capital

For example:

MINI €1000, available capital: €6250, minimum withdrawal: €62,5 USD (1% of €6 250)
STANDARD €2000, available capital: €12500, minimum withdrawal: €125 USD (1% of €12500)
MAX €4000, available capital: €25000, minimum withdrawal: €250 USD (1% of €25000)

Profit share: Proprietary Trading firm / Trader: 25% / 75%
Registration: Click link to join

Statistics: all trading strategies earn long-term. It does not mean that every month ends on plus, because there are also worse months, but looking at it annually, the estimated profit equals 25-75% of available capital, bought by a trader, when he chose particular, non-refundable charge for the access to it.


The possibility to see all transactions actioned by automated strategy previous day: YES

The strict rules to reduce the risk (such as closing all transactions at 5pm or allowing maximum loss of 20% of available capital): protect the business of Proptrading office, which in exchange for enabling trading and using their automated strategies on the market, expects appropriate part of profits.


Interesting fact: Proprietary Trading firms which do not offer the use of automated strategies, but sell the access to an office and company's capital to a trader, for independent training on the markets, very often put traders through thorough and specific recruitment process.

What does it mean?

It means that not every person is allowed to, just like that, enter and buy the access to significantly larger amounts of money for trading. The requirements are: psychological approach (being able to control emotions), market knowledge, determination - checked by conducting various tests, before allowing a trader to purchase one of their options 'office entrance + company's capital for trading + allowance to use company's computers, servers and equipment'.

On which markets does Proprietary Trading firms trade?

Prop trading firms focus on investing on global markets (mainly currency markets). These companies work within the range of one session, so called daytrading (transactions sometimes last few seconds, few minutes, or few hours - but they must be closed during the same market session, so the same day when they were opened).

Most often a company sets definite hour for closing all transaction opened by traders and automated strategies. It may be, for example, 5pm or 6pm. Average working hours of trading offices are: 2pm - 10pm - for proptrading firms on American markets, and 8:30am-8pm - for companies that focus on futures and stocks.

Every Proprietary Trading firm may freely set their own working hours.

Prop Trading may be a good option for everyone who do not have adequately large capital to take out maximum income from markets and from forex, at the same time, receiving a company's support, trading trainings + the most importantly: higher capital for trading.

Important: I am not an investment advisor!
I am just the publisher, and I’m not taking responsibility for any company listed out here.
I am not responsible for any kind of money loss from joining or participation in the reviewed programs.

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