Proprietary trading, also known as prop trading, is a trading model wherein a bank or trading firm uses its own money, rather than a client’s money, to trade various financial instruments such as stocks, bonds, commodities, and derivatives. The objective of this trading model is to allow the firm to retain most if not all of the profits from the trading, as opposed to the much smaller percentage it would earn if trading on behalf of clients. Proprietary trading operates in a straightforward manner.

Initially, a proprietary trader, upon joining a prop firm, is provided with a specific amount of money by the firm to begin trading. The amount of trading capital given to the trader often depends on their trading experience and track record of successful trades. The prop trader and the firm also enter into a contractual agreement regarding the portion of profits the trader will retain.

To begin trading, the proprietary trader employs various trading strategies to execute trades. Some common prop trading strategies include short-term trading, swing trading, position trading. Some prop traders often use either fundamental or technical analysis to assess the markets before placing trades.