Is Proprietary Trading Profitable? - Advantages and Disadvantages or Prop Trading

Proprietary trading became very popular over the last few years. This is why we’ve been approached many times to get into the details of proprietary trading and how it works.

Proprietary trading became very popular over the last few years. This is why we’ve been approached many times to get into the details of proprietary trading and how it works. But the main question that we get is: is proprietary trading profitable? 

This guide will focus on what proprietary trading is, whether it is profitable or not and which are the advantages and disadvantages of these companies. If you are curious about proprietary trading, then you should know that there are many advantages to it. We will get into the details and more in the next sections.

What is Proprietary Trading?

Proprietary trading or prop trading is known as a form of trading in which an investor's funds are commingled with those of the broker or investment bank. The transactions involved differ from a simple buy and sell, as usually, brokers (also known as dealers) will use the client's money to trade for them. 

Proprietary traders are usually employed by a securities firm or investment bank to trade for or on behalf of the firm. The big-name investment banks and brokers (think Goldman Sachs and Morgan Stanley) employ thousands of prop traders, who are known as algorithmic traders. A more specific description of what prop trading is will be needed because some people use the term differently.

When a prop trader is employed by the firm, the motivation for such traders is usually to generate profits and profits in large amounts. Since the trading of securities is highly speculative and most of the trades go against the investor, there are several reasons why prop trading is being used today. When an investor decides to use their money with a firm that employs prop traders, that firm provides a service in return for taking on risk.

Is Proprietary Trading Profitable?

Since prop trading is the opposite of ordinary trading, it is a good idea to consider what prop trading really means when discussing its profitability. Every firm that employs prop traders takes on all the risk and must generate profits in order to survive. If you are an investor who uses a firm that employs prop traders, you pay a fee in exchange for having your money used in the market.

As you can imagine, investors use prop traders to generate more income and help their portfolios grow. If you are an investor who is interested in trading securities and wants to know if prop trading is right for you, there are some things that you need to take into consideration.

The first thing is that your money will be at risk when dealing with the broker or investment bank. In the case of prop trading, your money will be commingled with other investors' money. The fund that you have will be used to start a new position, and the firm takes on a certain amount of risk. The compensation is built in as the brokerage fee and most investors expect to lose some money at first.

That being said, prop trading should not be confused with ordinary trading. While your portfolio is commingled with other investors, your money will not make bets against its own assets.

It is worth taking into consideration that when we talk about proprietary trading, traders have the possibility to make large profits. This is something that would benefit the proprietary firm, the trader himself and the investors that rely on the trading firm to increase their portfolios. 

Depending on the experience and the portfolio that the trader is handling, there will be different possibilities to generate income for investors. Many traders would be able to trade different assets and with different strategies. Trading knowledge and experience would be key in order for investors to be able to execute their trading strategies and be profitable using a proprietary trading firm. 

Advantages and Disadvantages of Proprietary Trading

There are many advantages and disadvantages of proprietary trading that are worth taking into consideration. We are talking about the benefits of using these types of trading firms and how they can help traders earn a living. However, there are also some negative aspects that would make the whole trading activity more difficult and that could create issues to traders. Let’s have a look at these advantages and disadvantages. 


When we discuss the advantages of proprietary trading, we are thinking about the fact that this could be a very profitable activity. But this is not the only thing that we should take into consideration. For example, we should also think about how easy it is for traders to search for a proprietary trading firm or start a career in the financial industry. 

It Could Be Very Profitable

Yes, proprietary trading could be very profitable for traders. Users that want to start their career in the industry can start earning large profits as soon as they start managing a larger capital. The larger the capital they manage, the larger the possibilities to be profitable are. 

Of course, there are some things to take into consideration, including the strategies that the company follows and the restrictions that it imposes on traders. If you are new to proprietary trading, then you should pay attention to these restrictions and analyze how you can be profitable following the company’s requests and guidelines. 

Several Companies Are Already Operating in the Market

Another advantage of proprietary firms is that there are many options in the market. If you are searching for a good company to start your trading activities, then you have the possibility to choose from many of them. There are many options that you can select from. 

A competitive market means better opportunities for you as a trader. You don’t have to be worried about unfair or harsh conditions to operate. If you do not like one of the companies to conduct your trading activities, then you can try another company. 

Each of these proprietary trading firms has different advantages and disadvantages. It is up to you to decide which of them you use to execute your trades and become profitable in these volatile markets. 

It can be a great way to start a career

If you like finance, forex, trading and cryptocurrencies, then you should analyze whether proprietary trading firms could offer you a good career path for your future. If you have no other options available, you can test your luck with these firms. 

In some cases, prop trading firms will be offering you great incentives to continue your trading career. Additionally, you could gain experience on these trading companies and then move to other larger trading desks. This would be a great way to start your career path. 

You Will Learn New and Advanced Trading Strategies

When starting to work for a proprietary trading company, you would be able to learn and test different trading strategies. These trading strategies can be your own or could have been given by the proprietary trading firm. 

Take into consideration that most proprietary trading companies have their own strategies that you would have to follow, while others would prefer you to take on the leading role and test different market strategies. The better you perform, the better it would be for you as a trader and for the prop trading firm.

With some of the constraints imposed by the company for which you work, you will be able to adapt to new market realities and operate within that framework. 


We have discussed some of the most popular advantages of being a trader for a proprietary trading firm. But there are also some negative aspects about them that are worth considering before deciding to start using them. Let’s get into the details of these disadvantages. 

It could be difficult to reach the target profits

One of the most important things that proprietary firms would request is to have a profit target. You can be an excellent trader. You might have made money and registered profits over the training period. However, the company might not be happy with your results. 

That could happen because there are some target profits that you have to reach as a trader. In general, the targets are between 4% and 12% for the first months of trading. During that time, you should show that you are capable of operating under stressful conditions and that you can deliver on adverse market conditions. 

Furthermore, the longer you trade, the lower the target profits that the proprietary trading firm would impose on you. Therefore, it is always a good thing to be ready to make larger profits than expected. Companies would pay close attention to these details. 

There are many restrictions to your trading

If you have a working strategy that has been tested throughout the years, it might be difficult to adapt to new circumstances. Prop trading firms have their own strategies and restrictions that will definitely apply to your trading. 

These restrictions can certainly be different. For example, they can be related to the percentage of funds that you can use, the type of indicators that you can use to trade, the leverage that you manage and even the number of trades that you execute, among other things. 

Understanding and being able to manage these restrictions would take some time, especially if you are used to trading under certain circumstances. Additionally, if you are new to trading, you might have trouble properly understanding the requirements imposed by the proprietary trading firm. 

You don’t have a base salary

Finally, most prop trading firms don’t offer you a base salary. In some cases, you might have the possibility to request one after several months or years working with a clear positive track of trades. Otherwise, you would just be trading for profits and a percentage of the winnings that you are expected to make. 

If you are in a period in which you need financial stability, then this might not be an ideal way to start. If you have nothing to lose and you are ready to take on new challenges and risks, then this could be a great opportunity. 

It is up to you to analyze whether you want to take the risk to work with a commission scheme rather than with a base salary. However, you should also know that the longer you trade and the better your results are, the larger the possibilities are that the company would offer you a base salary.

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