Here at The Trading Pit, we believe 2025 is the year you finally become a prop trader, and we also understand the importance of being equipped with the necessary knowledge to succeed in the world of trading.
Beginners who are about to make their very first steps in the financial markets often find themselves facing a dilemma of whether to go for retail or prop trading.
As a trader prepping for a fruitful year, you are likely to come across different strategies, concepts, and models within the trading industry – each which comes with its own cons and pros.
Among the different trading styles, both proprietary and retail trading have proved to be promising paths for all types of traders. While these two popular methods have certainly garnered attention in the trading world, they cater to distinct audiences and operate under varying frameworks.
Before we get into it, let’s take a step back and answer a very common question that’s popping nowadays – what is prop trading, exactly?
Prop Trading – The Better Route for Traders?
The rising popularity of proprietary trading has become increasingly evident over the past few years, with everyone starting to jump on the trend.
At its core, proprietary trading revolves around the term “prop,” short for proprietary.
Simply put, proprietary trading is when a financial firm or institution trade several asset classes – such as stocks, derivatives, forex, etc. – with their own capital in a simulated environment, rather than using their clients’ funds. Why? It allows companies to use their personal capital to make direct profits from the market instead of relying on client commissions or fees.
Simultaneously, this setup allows clients the firm to bear the risk and potentially make higher returns, while traders can dedicate more time to refining their skills without the pressure of using their money.
The main goal of a proprietary trading firm, like TTP, is attracting top talent and invest in traders who prove to be consistent in their strategies.
Not only this, but when it comes to retail trading, you would need to invest your own capital to begin trading. In contrast, with prop trading, you only need to pay the fees of a certain challenge (plus any addons you decide to get for an optimized trading experience), such as TTP’s CFDs Prime Challenges, where you can get started as low as 49EUR.
Prop vs. Retail: Keeping Score?
As a trader kicking off your trading journey, one of the most important questions that comes to mind is: would you be happier as a funded trader or retail trader?
While the answer is not as simple, prop trading presents opportunities not necessarily found in retail.
Leverage
Funded traders usually have more money available to trade than retail traders as prop firms tend to have not only a good reputation, but also more bargaining power. A prop company might be more advantageous given that they will give traders additional capital to trade according to their results.
On the other hand, retail traders start with limited leverage, which will be difficult to change unless they deposit more money into their account.
Suppose, for example, that you deposit $5,000 into your retail trading account.
With leverage, you could have $50,000 to $100,000 to trade. If you’re looking to double your buying power, you'd need to deposit an additional $5,000. In contrast, prop firms increase your buying power based on your performance, not your account balance.
Commission
Proprietary firms can negotiate lower commission fees with brokers due to their high trading volume, and they pass these discounts on to traders accordingly. Retail traders, on the other hand, don’t have this bargaining power and usually face higher fees.
Training & Resources
In prop firms, it is very common to offer free training, resources, and community support – which is important, especially at the beginning of a trading journey, where a trader would require guidance and theoretical and psychological support.
Retail traders are free to trade whatever they want but won’t be able to benefit from the support of other experienced traders and a favorable environment promoting growth.
Join TTP Discord channel for exclusive access to a supportive community of like-minded traders
Profit Split
One key difference between both types of trading is the way profits are split. A proprietary firm makes money from commissions, but also from a share of the trader’s profits. On the contrary, the retail trader keeps 100% of the profits.
Did you know? At The Trading Pit, our traders get up to 80% of profits.
Risk Management
In a prop firm, risk managers establish loss limits and specific conditions to protect both the firm and the trader, such as blocking trades once a profit target is hit, setting daily loss limits and maximum drawdowns, or disabling certain roles. Such measures help maintain the firm’s financial stability while also encouraging disciplined trading.
While retail traders can set personal rules, they are more likely to break them due to the lack of external oversight and structure.
Related: Prop Trading vs. Retail Trading
4 Types of Prop Trading Firms
Prop trading firms come in a variety of forms, each with its unique characteristics and strategies:
Independent prop trading firms
Bank prop trading desks
Broker-dealer prop trading desks
Market-making firms
Each type of prop trading firm has a different approach and strategy, which should be taken into consideration. Therefore, while a certain type may be a good fit for you, another might not.
Independent prop trading firms
Independent prop trading companies offer more flexible terms, which makes them advantageous, but it is also important to note that they can also be riskier as traders are solely responsible for their losses.
Bank prop trading desks
Bank proprietary trading desks hold somewhat of a unique position in the financial industry.
These are specialized units within banks focused on trading the financial markets using the bank’s own capital, aiming to generate profit for the institution. Examples include Goldman Sachs, Morgan Stanley, and JPMorgan Chase.
Broker-dealer prop trading desks
In addition to bank prop trading desks, broker-dealers also have their own prop trading desks that make use of four distinct types of trading firms – corporate prop trading firms, proprietary trading firms, hedge funds, and high-frequency trading firms.
Proprietary trading firms are private companies that trade their own account and are not subject to broker-dealer suggestions.
Hedge funds use several investment strategies, including prop trading.
Market-making firms
Market-making firms trade on their own behalf to provide liquidity for clients.
Examples include CME Group, ICE Futures Europe, and Nasdaq.
Can Prop Trading Escape Retail Regulations?
The regulations between retail trading and prop trading differ massively... but what is the reason behind that?
Retail Trading Regulations
As already mentioned, retail trading involves individuals trading with their money, which makes it subject to a vast range of regulations aimed at protecting investors and maintaining market integrity and transparency.
Consequently, retail traders must adhere to strict rules on leverage, margin requirements, and risk exposure. Regulatory bodies have set these standards to ensure that investors are not exposed to excessive risk.
These regulations address rules on transparency, fair access to trading, and managing risks that could potentially affect investors badly. One of the most common regulations for retail traders is around the use of leverage, which is often capped to protect retail traders from excessive risk.
Not only this, but margin requirements and risk limits are stricter to prevent severe losses.
Prop Trading Regulations
On the other hand, prop trading operates differently since the firm is trading its own capital and the industry is still in a transition stage.
The regulatory scene when it comes to prop trading remains a tricky and sensitive subject within the space, and such firms are generally subject to fewer direct regulations on the traders themselves. However, it is still required that they comply with regulations focusing on capital adequacy, reporting, and anti-money laundering laws.
Since the firm is responsible for managing its own capital and risks, it is more concerned with ensuring that its traders are following internal risk management policies rather than adhering to the same individual protections required in retail trading.
With that being said, regulations like the Dodd-Frank Act or Markets in Financial Instruments Directive (MiFID) II can still affect how firms operate, especially if they deal with complex instruments or manage substantial amounts of client funds.
TL;DR
Whether proprietary trading is the better alternative is relative to your goals, vision, and overall journey as a trader.
While retail trading offers some advantages – such as complete autonomy and flexibility – prop trading provides valuable resources, risk management, and access to capital, making it an interesting option for those just getting started, looking to grow quickly, and learn in a structured environment.
Frequently Asked Questions (FAQs)
What is proprietary trading?
Proprietary trading is when a company, like a bank or trading firm, uses its own money to trade financial markets in order to make profit. Unlike traditional brokers who trade on behalf of clients, prop firms aim to earn from the trades they make themselves.
How does prop trading differ than retail trading?
Essentially, funded traders work with a firm's capital, while retail traders use their own.
Is it better to trade with a brokerage or proprietary firm?
If you trade with a brokerage, you are using your own money to trade, hence you are responsible for your own risks. With a prop firm, you trade with the company’s capital, and they provide support, training, and resources. While they offer more opportunities, they also come with higher expectations. It all depends on your personal goals, but prop trading offers opportunities not seen in the retail trading space.
What are the advantages of prop trading?
With this type of trading, traders get access to the firm's capital, allowing them to take bigger positions and potentially higher profits without using their own money. Traders also benefit from the support and resources provided by the firm, such as training, advanced tools, and risk management.
How can I become a funded trader?
At The Trading Pit, traders usually have to undergo an evaluation Challenge to prove they are talented enough to be trusted for our partnership program.
After successfully meeting the firm's targets and adhering to our rules, our firm provides an environment in which the trader can trade in and keep a share up to 80% profits.
You get to purchase your preferred challenge, either Classic or Prime available for CFDs or Futures, and simply get started!
