Proprietary trading

Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.^[1]

Proprietary traders may use a variety of strategies such as index arbitrage, statistical arbitrage, merger arbitrage, fundamental analysis, volatility arbitrage, or global macro trading, much like a hedge fund.^[2]

Structure and operation

Proprietary trading firms typically allocate capital to traders under defined risk management rules, including position limits, maximum drawdowns, and loss thresholds. Traders are generally compensated through performance-based arrangements, in which profits are shared between the firm and the trader according to contractual terms. Unlike hedge funds, proprietary trading firms usually trade only the firm’s own capital and do not manage external investor funds.^[3] As a result, proprietary trading firms focus primarily on internal risk controls and capital efficiency rather than asset gathering or client reporting.

Regulation

Following the 2008 financial crisis, some jurisdictions introduced restrictions on proprietary trading by banks. In the United States, the Volcker Rule limits deposit-taking institutions from engaging in certain types of prop trading.^[4] Independent proprietary trading firms, which do not take customer deposits, are generally not subject to these prohibitions.^[5]

Notable proprietary trading firms

• Akuna Capital
• Citadel Securities
• DRW Trading Group
• Flow Traders
• Global Trading Systems
• Headlands Technologies
• Hudson River Trading
• IMC Financial Markets
• Jane Street Capital
• Jump Trading
• Optiver
• PEAK6
• Quantlab
• Radix Trading
• Susquehanna International Group
• Tibra
• Tower Research
• Tradebot
• TransMarket Group
• Virtu Financial
• XTX Markets

See also

• Flow trading

References

1. Heather Stewart (21 January 2010). "What is 'proprietary trading'?". The Guardian.
2. "Proprietary Trading: What It Is & Related Trading Firms". DayTradeTheWorld. 28 September 2020.
3. "Prop Trading vs Hedge Funds: What Every Investor Should Know". Retrieved 10 January 2026.
4. "Volcker Rule: Definition, Purpose, How It Works, and Criticism". Investopedia. Retrieved 10 January 2026.
5. "Factbox: What is the U.S. Volcker Rule?". SEC (U.S. Securities and Exchange Commission). December 10, 2013.