Proprietary trading means a firm trades financial markets using its own money, not money belonging to clients. A prop trading firm earns its revenue directly from those trades. When the trades are profitable, the firm gains. When they are not, the firm absorbs the loss.

This is different from how a brokerage or investment fund operates. A brokerage earns commissions on client transactions regardless of whether those clients make money. A prop firm only profits when its traders perform well. That direct link between trader performance and firm revenue is one of the key reasons the prop firm model has become so popular.

Proprietary trading was once limited to the internal desks of large financial institutions. Over time, standalone prop firms emerged that allowed retail traders to access firm capital through structured programs. Today, traders from all backgrounds can apply to these programs, pass an evaluation, and begin trading with professional-level capital without needing to work at a bank or financial institution.