Proprietary Trading vs Online Trading: An In-Depth Comparison 2024

Proprietary trading refers to the practice of a trading firm using its own funds to trade. This is advantageous because prop trading allows the trading firm to keep 100% of the returns. In contrast, firms that trade on behalf of clients using client funds are only able to collect commissions and fees, while returning the bulk of the returns to their clients. 

Proprietary trading firms offer prop trading accounts to traders, who are tasked with carrying out trading activities using the prop trading firm’s capital. In exchange, proprietary trading firms provide prop traders with training, information and other resources, and may also offer a base salary or profit-sharing as remuneration. 

On the other hand, online trading involves an individual investor or trader using their own funds to trade via an online brokerage. Online trading is self-driven, with traders having to educate themselves on market factors, learn trading strategies and skills, and test out ideas and hypotheses.  

In this article, we’ll take a look at the differences between proprietary trading and online trading, and which one might be better suited to you.  

Key Points 

• Proprietary trading allows firms to use their own funds for trading activities, enabling them to retain 100% of the profits, unlike client-based trading where profits primarily go to clients after fees. 

• Online trading allows individuals to trade independently using platforms like Metatrader, requiring self-taught market strategies without professional support. 

• Prop trading offers significant capital and advanced tools, leading to high potential profits but involves additional fees and higher risks. 

Understanding Proprietary Trading 

Definition of Proprietary Trading 

Proprietary trading, commonly known as “prop trading”, involves traders using the capital of a financial firm or “prop firm” for trading activities. Instead of using their own capital, traders will be given access to a bigger pool of trading funds by the prop trading firm, facilitating much larger positions.  

Returns from successful trades are typically shared between the trader and the trading firm, although the percentage split and payment format may differ according to the type of prop trading programme offered by the form.  

When joining a prop trading programme, a prop trader will be provided with sophisticated trading resources, in-depth market data and specialised software – all of which are typically not available to retail investors. Training, mentorship and a support network staffed by experienced traders are often other benefits of prop trading, which are all meant to propel traders to the next level in their trading careers.  

How do Prop Trading Firms Operate? ^[1]  

Prop trading firms use their own capital, rather than client funds, to buy and sell various financial products in order to generate profits in markets. In return, this allows them to keep 100% of the profits for themselves.  

The primary goal of a prop trading firm is to consistently make profits from the firm’s own market positions and trading activities, across different financial instruments. That said, some firms can be more specialised, focusing on certain markets like foreign exchange or commodities. This allows them to optimise their strategies and expertise. The key point is that prop firms don’t have clients; they are trading their own money which gives them greater flexibility.  

Prop firms provide multiple kinds of trading tools for their traders to become the best at their jobs. This can include real-time market data and news feeds, analytics and charting software for traders using technical analysis. The most successful firms often invest the most resources, both in terms of time and money, in their traders.  

Advantages and Disadvantages of Prop Trading 

Advantages	Disadvantages
Access to greater capital	The greater the capital, the higher the fees
Increased profits	Less regulation than online trading
Opportunity to hone trading skills with professional coaching	Trades are typically speculative, usually involving forex and derivatives
Robust risk management
Advanced technology and in-depth market data

Due to the way in which prop trading accounts operate, prop traders should be aware of its advantages and disadvantages. 

In terms of advantages, signing up for a prop trading programme will allow a trader to gain exposure to a level of data, information, skills and knowledge that retail investors are typically not privy to. Prop traders regularly make use of advanced software and may even deploy sophisticated tools including AI and trading bots ^[2]. 

Furthermore, prop traders can gain support and training from highly experienced professional traders, accelerating their own knowledge and skills at a much faster pace. Additionally, a risk manager is on hand to limit trading risk ^[3]. 

Prop trading isn’t without its drawbacks though. One feature of prop trading is that trades tend to be highly speculative, involving the use of financial derivatives and an assortment of strategies such as arbitrage and global macro trading.  

The practice of prop trading has even been criticised for its use in obscuring activities that promote corporate self-interest. This is no doubt further fueled by lower transparency as there is less regulation in proprietary trading.  

Finally, proprietary trading accounts may come with registration fees, which can make it more difficult to begin the journey of a successful prop trader. It is prudent to be clear about the fees a prop account may incur, and weigh it carefully against the potential of future earnings.  

Example of Prop Trading Firm 

There are many different prop trading firms established across the globe. Due to less regulation, there is a need to do thorough research to find out how each firm operates, and whether their policies are agreeable to you.  

FTMO is a solid and well-respected firm, established nearly ten years ago. It offers traders a demo account with transparent fees and up to 90% profit share. However, its two-step evaluation means it can be hard to qualify as a prop trader. 

Funded Trading Plus is based in the UK and offers a variety of programs on demo accounts. Their maximum leverage can be restrictive for some traders, though you can get paid in as little as one day and with 100% profit split. 

FundedNext is based in the Middle East and offers three different challenges with various targets and structures. There are no time limits to complete  the trading challenges, and traders can access leverage of up to 1:100 on most accounts. 

Vantage Elite is another example of a prop trading firm. Their challenge is a funded trading challenge that is designed to assess and enhance the skills of traders. By participating, traders gain access to up to $200,000 in simulated funds and can earn 80% of the profits they generate, reflecting Vantage Elite’s commitment to their success. This commitment is further demonstrated by the refund of registration fees with the first payout for those who advance to become Elite Traders. 

Participants can choose between two account types—Basic and Plus+—catering to varying risk tolerances and trading preferences. The challenge process includes a Challenge Phase and an Evaluation Phase, which are structured to develop not only trading skills but also essential attributes like discipline and risk management. Vantage Elite prides itself on transparency, offering no hidden fees and fast, fortnightly payouts, creating a reliable environment for traders to succeed. 

Supporting participants throughout their journey, the Vantage Academy provides a wealth of educational resources. Available to traders at all levels of experience, these resources cover everything from basic market principles to advanced trading techniques, equipping participants with the knowledge to excel in the competitive world of trading. This educational support ensures that traders are well-prepared to navigate the markets and maximise their potential in the Vantage Elite Challenge. 

Understanding Online Trading 

Definition of Online Trading  

Online trading has taken off in recent years as millions of people around the globe now have access to award-winning online trading platforms. These are typically free-to-use and enable traders to buy and sell in a huge range of financial markets including forex, stocks, indices and commodities.  

How Online Trading Platforms Work 

Previously, gaining access to markets was often time-consuming as investors had to be physically present at the exchanges, or call upon the services of a stockbroker. 

Online trading platforms like Metatrader 4 and 5 now allow anyone to buy, sell and hold all types of financial instruments seamlessly, from desktops, tablets or mobile phones at any time.  

MT4 and MT5 are both highly popular trading platforms that offer similar trading tools and capabilities. Being the more advanced model, MT5 provides additional order fill policies and pending orders for more advanced ways of trading.  

Advantages and Disadvantages of Online Trading  

Advantages	Disadvantages
Fast execution and ability to trade on the go	Limited training or guidance provided
Accessible to traders of all skill levels	Self-determined risk controls
Customisable and intuitive interface	Advanced products may not be suitable for beginners
Offers a host of trading and charting tools

In comparison with prop trading, online trading via a broker is much more free-wheeling. As there is no formal training involved, online traders will have to be self-motivated to improve their own skills and knowledge while learning how to trade. 

Online trading offers distinct advantages including fast trade execution and the freedom to trade on the go. This is because top-notch online brokers offer lightning-fast connections, live price action and real-time market news, empowering traders to log in and trade at any time and from anywhere in the world.  

Popular trading software such as MT4 and MT5 are designed to foster ease of use, with customisable interfaces to suit personal preferences. But more than that, online trading platforms also offer a host of useful resources, ranging from charting tools and technical indicators to educational articles, videos and other resources.  

Additionally, online trading is designed to be accessible to traders of all skill levels, with brokerages catering to a range of trading strategies – from basic buy-and-hold to short-selling and trading of financial derivatives. 

On the flip side, online trading does not offer training or coaching by experienced traders, but traders can join training classes or online courses to establish foundational knowledge. Because online traders are acting independently, they have to learn how to manage trading risk on their own.  

Finally, some of the more advanced trading products such as derivatives may not be suitable for beginners who lack the proper understanding of the risks they pose.   

Examples of Online Trading Platforms  

MT4 and MT5 remain two of the most popular trading platforms, beloved by traders around the world. Vantage offers both these platforms to our traders free of charge, so they can benefit from the many powerful features and essential trading tools within to improve their trading outcomes.  

Additionally, we have also developed our in-house trading apps aiming for a seamless and reliable trading experience. Choose from our Vantage Web Trader app for unfettered access to your trading account and positions via an internet connection, or download our feature-rich Vantage mobile app to trade from your mobile phone or tablet while on the go.  

3 Differences Between Proprietary Trading and Online Trading 

Capital Requirements  

As a prop trader, you do not need to use your own funds to trade. Instead, your prop trading firm will provide their funds for you to trade with. In this way, prop trading allows you to take part in markets with higher capital requirements that may be out of reach for the average retail trader.  

Meanwhile, online trading can only be performed using your own funds. The size of your positions, and type of markets, will be limited accordingly. However, you are free to choose your trading strategies.   

Risk and Reward 

Trading can be a highly rewarding pastime and career. It can also be stressful and requires a high level of dedication and discipline. Prop trading means traders don’t have to worry about the safety or durability of their own funds and trading pot. Instead, you can fully focus on generating profits and trading mindset. 

Online trading offers potential gains and an environment that can be rewarding. You have the freedom to trade what and how you like. But that also means you need to fully understand your risk management process as you are trading with your own capital which is constantly at risk.  

Trading Tools and Resources  

Access to lightning-speed technology can be expensive. Access to live market data via Bloomberg terminals makes for major investments while fast data live news feeds and professional charting software further add to monthly trading costs. Some prop trading firms may provide some of these tools, allowing prop traders to access deeper levels of market data for better-informed decisions without having to bear high costs.  

However, online trading brokers also recognise the importance of market data and information in trading and strive to provide an array of resources online, including expert insight, analyst predictions and trading tools. Both MT4 and MT5 also offer a huge variety of technical analysis indicators across multiple timeframes and can also provide the latest financial news. 

For the tech-savvy, built-in programming tools on both platforms enable traders to write trading programs and develop custom-made management tools and trading signals. You can also write programmes to copy trades of other traders or subscribe to trading signals provided by various Expert Advisors. Back-testing capabilities are also available, allowing you to test your strategies against historical data.   

Which Trading Style Suits You: Prop Trading or Online Trading? 

Trading Goals 

Prop trading gives traders the chance to mix with experienced traders and mentors. As a result, your trading goals may widen with these broader opportunities. Of course, online trading gives traders huge freedom to explore markets as they wish, setting out their own trading goals within their own timeframe.  

Risk Tolerance 

A trader assumes reduced financial risk when trading at a prop firm. This is because trades are funded by the prop firm, relieving the trader from having to put up their own funds. However, there can be increased pressure to hit profit targets.  

Online trading is performed using the trader’s own funds. That inevitably means there is comparatively more risk involved, requiring online traders to have a higher degree of risk tolerance. In return, online traders get to keep 100% of net trading profits earned, which could result in potentially larger gains.   

Financial Situation 

Traders who are having trouble growing their accounts on their own may find it advantageous to tap on the funds provided by a prop trading account instead. As a prop trader, you can trade without risking your own funds, while accumulating the profits shared with you to grow your own trading pot.  

Online trading makes use of your own funds, so you should always be aware of your financial situation and your potential downside so as to avoid taking on too much risk.  

Trading Environment 

Prop trading firms give traders access to advanced trading platforms and tools. Networking with other experienced traders and contact with mentors may also be available when trading at a prop firm. In short, the intense trading environment of a prop trading firm is arguably the best way to gain advanced trading knowledge and develop high-level trading skills. 

Online traders trade at their own time and pace, making for a more relaxed trading environment. However, the lack of professional guidance or exposure to like-minded traders may inhibit progress for those who lack self-motivation.   

Conclusion 

Ready to challenge yourself and put your trading skills to the test? Sign up as a Prop Trader with Vantage Elite and take your trading game to new heights. 

Prefer the flexibility of online trading? You’ll find everything you need to succeed, and more, with Vantage. Sign up for a live account to start trading, or test out our powerful platform with a demo account.  

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.

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