Prop Trading vs Retail Trading (2024)

In the dynamic world of finance, trading plays a crucial role, offering numerous opportunities for individuals and institutions to grow their wealth. Among the myriad of trading styles, prop trading and retail trading stand out as prominent paths, each with its unique characteristics and appeal. This article aims to demystify these two popular trading methods, providing insights into their workings, differences, and what they mean for you as an investor or a career trader.

Prop Trading: An Introduction

Proprietary trading, commonly known as prop trading, involves financial firms or commercial banks investing their own capital to generate profits. Unlike traditional client-focused trading, where the profit comes from commissions and fees, prop trading's gains are direct, stemming from the trading activity itself. This form of trading allows institutions to leverage their specialized knowledge, sophisticated technology, and risk management strategies to capitalize on the financial markets.

Retail Trading: An Overview

Retail trading, on the other hand, is conducted by individual traders who trade with their own money, often through online platforms. These traders range from beginners to experienced investors and are characterized by their independence in decision-making. Retail traders typically do not have access to the same level of resources as institutional traders but benefit from the flexibility and personal control over their investment choices.

Prop Trading and Retail Trading: Key Differences

When choosing a trading path, understanding the key differences between prop trading and retail trading is vital. Prop traders benefit from the backing of their firms, allowing them to take larger positions and potentially achieve higher returns. This backing, however, comes with the responsibility of adhering to the firm's rules and the risk of substantial losses.

In contrast, retail trading offers more autonomy and control, allowing individuals to trade with their own capital through online platforms. This path provides flexibility but requires a disciplined approach to manage risks and make informed decisions. Retail traders often start with smaller investments, scaling up as they gain experience.

Pros and Cons of Each

Prop Trading Pros:

  • Access to larger simulated capital and higher leverage

  • Potential for significant profits

  • No personal capital risk (beyond audition fees in some cases)

Prop Trading Cons:

  • Strict rules and potential for account closure

  • High-pressure environment

  • Limited personal control over trading strategies

Retail Trading Pros:

  • Full control over trading decisions

  • Accessibility and convenience of online platforms

  • Ability to start with small capital

Retail Trading Cons:

  • Limited access to large capital

  • Higher individual risk and responsibility

  • Need for self-discipline and market knowledge

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Choosing the Right Path for You

Deciding whether to pursue prop trading or retail trading depends on your personal goals, risk tolerance, and level of experience. Prop trading can be a suitable path for those seeking to trade with larger capital without personal financial risk. Retail trading, meanwhile, is ideal for those who prefer autonomy and are willing to start small and grow gradually.

When it comes to trading decisions, having full control is a major advantage. With prop trading, you may have to follow certain guidelines and strategies set by the firm. However, retail trading allows you to make your own decisions without external influence. This autonomy can be empowering for those who prefer to trust their own instincts and analysis.

Accessibility and convenience are also important factors to consider. Online platforms have made trading more accessible than ever before. Whether you choose prop trading or retail trading, you can easily access the markets from the comfort of your own home. This convenience allows you to trade at any time that suits you, giving you the flexibility to balance trading with other commitments.

Starting with small capital is often a reality for many traders, especially those who are just starting out. Retail trading provides the opportunity to begin with a small investment and gradually grow your capital over time. This can be appealing for individuals who may not have access to large amounts of capital initially.

Risks of Retail Trading vs Prop Trading

However, it's important to note that retail trading does come with its own set of challenges. Limited access to large capital is one such drawback. Unlike prop trading, where you may have access to significant funds provided by the firm, retail traders are limited to their own capital. This can restrict the size of trades you can make and potentially limit your profit potential.

Another consideration is the higher individual risk and responsibility associated with retail trading. As a retail trader, you are solely responsible for your own trades and their outcomes. This means that any losses incurred are borne by you alone. It requires a certain level of self-discipline and risk management skills to navigate the markets successfully.

Market knowledge is crucial in both prop trading and retail trading. However, in retail trading, it becomes even more important as you are solely relying on your own expertise. You need to stay updated with market trends, economic news, and technical analysis to make informed trading decisions. This requires continuous learning and staying ahead of the curve.

Consider your preferences, financial situation, and long-term goals before deciding.

For retail traders, The Trading Pit offers educational resources and tools to enhance trading skills. Our focus on continuous learning and strategic risk management empowers traders to make informed decisions, whether trading on their own or leveraging our institutional support.


In conclusion, both prop and retail trading have their distinct advantages and challenges. The choice ultimately depends on your personal trading style, risk appetite, and financial goals. At The Trading Pit, we are committed to supporting traders on their journey, whether they choose the path of prop trading or retail trading. With the right education and strategic approach, traders can navigate the complexities of the financial markets and achieve long-term success.

Get started on your trading journey today! Click on the link below to explore our trading challenges and begin trading now.
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Disclaimer: This article is for educational purposes only and does not constitute financial advice. Trading involves risks, including the loss of capital.

Prop Trading vs Retail Trading (2024)


Prop Trading vs Retail Trading? ›

Unlike traditional brokers who manage and safeguard their clients' capital, prop trading firms utilize their own capital for trading activities. This approach eliminates the need to handle customer deposits, simplifying the operational aspects of the business.

What is the difference between retail and prop trading? ›

However, the stakes are equally high, with the potential for substantial losses of the prop firm's capital, resulting in the trader's account being closed as loss limits are breached. In contrast, retail traders operate with smaller capital, limiting the size of their positions and potential returns.

What is the difference between prop trading and trading? ›

Prop firms specialize in trading strategies and financial instruments such as equities, commodities, or options. On the other hand, traditional trading pertains to traders who trade using their capital. These traders can be individuals operating from home or professionals working in institutions or hedge funds.

How profitable is prop trading? ›

Proprietary trading occurs when a financial institution carries out transactions using its own capital rather than trading on behalf of its clients. The practice allows financial firms to maximize their profits, as they are able to keep 100% of the investment earnings generated by proprietary trades.

Do prop traders make good money? ›

And that single difference creates many other differences: Prop trading Partners can take a much higher percentage of the profits for themselves. The much smaller capital base (tens of millions up to hundreds of millions), means that it's possible to earn extremely high annual returns (100%, 200%+, etc.).

Do prop traders need a license? ›

Prop trading firms are less heavily regulated than regular brokerages and broker-dealers. However, if such laws apply, you must still properly register your business and get licensed.

Are prop traders considered professional? ›

Active traders in individual stocks have two general paths: become a professional trader (prop trader) or trade in a retail account.

Do banks still do prop trading? ›

Since the 2008 financial crisis, that has become somewhat less true. In the US, proprietary trading, as a business for big banks, has been more or less outlawed for a decade by the Volcker Rule.

How stressful is prop trading? ›

It's a competitive, high-stress field with drawbacks like any other career. It's also awash with less-than-reputable firms that offer zero base pay, limited profit sharing and often make new hires pay for training and tech. Avoid these types of firms as they're a ticket to plenty of risk with minimal reward.

Why is proprietary trading bad? ›

Personal Risk: One of the significant drawbacks of prop trading is the potential personal financial risk. If a trader doesn't perform well, they may lose their deposit, and in some cases, their job. Loss Limitations: Prop firms often implement daily loss limits to protect their capital.

What happens if you lose money prop trading? ›

Proprietary trading firms often provide evaluation accounts where you prove your trading skills. Usually, you pay a one-time fee to enter this "challenge." If you lose money during this evaluation, you won't owe anything beyond the initial fee.

How many prop traders fail? ›

According to it, 4% of traders, on average, pass prop firm challenges. But only 1% of traders kept their funded accounts for a reasonable amount of time. While this result is not nearly as bad as the one discussed earlier, it still looks bleak for prospective prop traders. But why is the percentage of failure so high?

Is prop trading illegal? ›

§ 255.3 Prohibition on proprietary trading. (a) Prohibition. Except as otherwise provided in this subpart, a banking entity may not engage in proprietary trading. Proprietary trading means engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments.

Can you make a living as a prop trader? ›

As a result, anyone can be profitable as a prop trader because profitability is linked to their experience and skills, strategy, and ability to generate gains by trading in the market with the firm's capital.

How many hours do prop traders work? ›

Prop traders spend long hours learning and building their skills as a trader. Later on, they might work 5, 9, or 12 hours a day, depending on their strategy and the market environment.

How much capital needed to start a prop firm? ›

How much money do you need to open a prop firm? Starting an online prop firm can cost as little as $10,000, while starting a traditional prop firm can cost up to $1 million.

What is a prop trade? ›

Proprietary Trading (Prop Trading) occurs when a bank or firm trades stocks, derivatives, bonds, commodities, or other financial instruments in its own account, using its own money instead of using clients' money.

Why do prop traders make so much money? ›

Prop firms provide traders with access to a significant amount of capital, typically in exchange for a percentage of the profits generated. This can allow traders to make significant profits, but it also means that they have the potential to lose a large amount of money.

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