Prop Trading vs. Brokerage Accounts: What's the Difference?

03.07.2025

Education

The choice between prop trading and independent trading on a brokerage account is an illusion. An experienced financier will say that these things should not intersect. Rather, they are steps on the same path to the financial Olympus.

Prop trading is a great way to quickly make money for independent trading. And independent trading is a great opportunity to increase capital for active investing. Finally, active investing is the best way to get to passive investing.

You can try to skip some of the stages, for example, go straight to independent trading. But in most cases, there is simply not enough capital for this. The minimum for trading as a main job is $30,000 - 40,000. At a cruising speed of 5.0% profit per month, $1,500-2,000 will only be enough for basic needs. This will be running in place like Lewis Carroll.

There is no point in talking about active investing. In order for it to become the main source of income, you will need an amount of $4.0-5.0 million or more. If the capital is not enough, investing can only be an additional activity. Counting on the future.

Even the great Warren Buffett had to attract several million dollars from investors to start in 1956. He himself invested only $105,000 in the fund. Without the attracted capital, the brightest star in the financial world may not have existed.

Financing

The source of funds is a critical element in a career. With $30,000 - 40,000 in savings, there is no alternative to prop trading. A trader with a positive trading system for $300 - 400 can get an account of $50,000 to manage.

To do this, you will have to pass the challenge. Show a profit of 10.0-12.0%. Comply with the risk management of a prop company. But this should not be a problem. A driver cannot get a job without good driving skills. A doctor - without education and practice. The same with a prop trader. A positive trading system opens the door to the professional world of trading.

Everything becomes even more interesting thanks to the account scaling system. The prop company is interested in increasing the portfolio of a reliable prop trader. If he consistently makes 5.0% per month, then with a certain frequency, usually every 2 months, the company increases the account by 40.0-50.0%. In 6 months, $50,000 can grow to $137,000. In independent trading, this is impossible.

Responsibility

Responsibility for a beginner is an important psychological factor. When all savings are involved in independent trading, fear paralyzes. Makes you stupid. This converts into unnecessary mistakes. And worst of all, it leads to increased risk. In an attempt to quickly recoup in the event of a series of unsuccessful transactions.

There is no such pressure in prop trading. At the challenge stage, the risk is limited by the cost of the exam. It is not necessary to compare $300-400 and $50,000. Everything is clear anyway. And after successfully passing the exam, the prop trader risks only the company's funds. The challenge fee is usually returned.

The savings of a novice prop trader are safe. They can bring investment interest during trading. There is no pressure of responsibility. There is inner peace. You can focus on perfect compliance with the rules of a profitable trading system. And the company's risk management requirements. Daily drawdown is no more than 5.0-6.0%. And the total - no more than 10.00-11.00%.

Profit

At first glance, profit distribution is the only element where independent trading has an advantage. On average, a prop trader gets 70.0-90.0%. Depending on the size of the account and merits. And the independent trader gets all the profit.

But in practice, simple calculations do not take into account the benefits of scaling. With the same starting point of $50,000 and a monthly yield of 5.0%, the independent trader's income will be slightly higher in the first 2 months. He will receive $2,500 x 2 versus $2,000 x 2 (80.0 percent share).

In the third month, the situation will begin to change. The prop trader's account, excluding profit, will be scaled to $70,000. And the independent trader will still have $50,000. The prop trader, with the same yield and share of profit, will receive $2,800 x 2 versus $2,500 x 2 for the third and fourth months. In the fifth and sixth months, the former's income will increase to $3,920 x 2 versus $2,500 x 2 for the independent trader.

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