What is Prop Trading?

Proprietary trading, commonly known as prop trading, refers to financial firms or banks trading financial instruments with their own money, as opposed to trading on behalf of clients. This practice allows firms to take advantage of market opportunities and generate profits directly.

Understanding the Basics

In prop trading, traders are often given access to significant capital and are incentivized to generate returns. This model can lead to higher profits for both the trader and the firm, but it also comes with increased risks.