What is proprietary (prop) trading?
Proprietary trading, or prop trading, is when traders use a firm’s capital instead of their own to trade financial markets. This allows traders to take larger positions without risking personal funds. The firm provides funding, and in exchange, the trader shares a percentage of the profits while adhering to risk management rules.
How does prop trading differ from retail trading?
Retail traders use their own money, meaning they take on all the financial risk and keep 100% of the profits (after fees and commissions). Prop traders, on the other hand, trade with a firm’s capital and follow specific guidelines, such as maximum drawdown limits and risk parameters.
In return, they receive a profit split, which is often significantly higher than what they could achieve with their own funds due to the larger account sizes and leverage available in prop firms.
Who can become a prop trader?
Anyone with trading experience or a desire to develop their skills can become a prop trader. Most firms require traders to pass an evaluation process (a challenge) to prove they can manage risk and achieve consistent profits. Some firms, like Supertrade, also offer Instant Funding for those who prefer to start trading immediately without completing an evaluation phase.
What are the main benefits of prop trading?
- Access to Larger Capital – Trade with up to $100K without investing your own money.
- Lower Personal Risk – Since you trade with firm capital, your personal funds are not at stake.
- Higher Profit Potential – With larger accounts and high profit splits (up to 80% in Supertrade), traders can earn significantly more than they could with personal accounts.
- Professional Trading Conditions – Many prop firms offer institutional-grade trading platforms, deep liquidity, and lower trading costs.
What are the risks in prop trading?
While prop traders don’t risk personal capital, they must follow strict risk management rules. Exceeding drawdown limits or failing to meet profit targets can result in losing access to the firm’s funds. Additionally, some firms require an upfront fee for challenge participation, which is non-refundable if the trader fails the evaluation.
Can I trade any strategy I want?
Most prop firms allow traders to use any strategy as long as it follows risk management guidelines. However, some firms restrict strategies like high-frequency trading (HFT), arbitrage, or news trading due to execution risks. Supertrade allows a wide range of trading styles, including scalping, swing trading, and algorithmic trading.