Prop Trading Vs. Day Trading: A Comparative Analysis

Jeremy BiberdorfBy: Jeremy Biberdorf

July 6, 2023July 6, 2023

Proprietary trading and day trading are two popular ways to make money in the financial markets. Both strategies allow traders to profit from price movements and fluctuations in the market but use different approaches. If you have ever wondered about the differences between prop trading vs. day trading, you’ve come to the right place. This article will provide a detailed, comparative analysis of these two trading modalities, referencing insightful reviews by Modest Money on prop trading firms like Fidelcrest, FTMO, Audacity Capital, and Earn2Trade.

Prop Trading

Proprietary trading (or prop trading) involves a financial firm trading stocks, bonds, commodities, currencies, and other financial instruments with its own money, hence the term ‘proprietary.’ This approach allows the firm to earn direct profits from market events rather than facilitating transactions for clients or earning commissions.

One big advantage of prop trading is that you don’t end us risking your own capital. A prop trading firm, such as Fidelcrest, FTMO, or Audacity Capital, will provide you with firm capital to trade in the markets. While there are a few prerequisites to access this feature, it can be a substantial advantage, particularly for novice traders or those with limited capital.

Prop trading also provides extensive institutional support to their traders. These companies leverage years of research, high-tech trading software, and direct trading networks to earn immediate execution and reduced trading costs.

But, on the contrary, one disadvantage of prop trading is that it can limit your trading independence. You would need to strictly adhere to the strategies, guidelines, and risk exposure limits set by the firm and cannot deviate from them.

Day Trading

Day trading, on the other hand, is a trading strategy where all positions are closed before the end of the trading day. It’s a self-employed, independent style of trading, often performed at home or in a small, private office. It requires thorough knowledge of the market trends, patterns, and financial news.

In day trading, traders use their own funds, promising unlimited upward potential. Traders have complete control over their trading strategies and decision-making processes without the influence of any institution.

A significant advantage of day trading is the freedom and flexibility it offers. You can adapt your trading strategies to your financial goals and risk profile, which might not be possible in a prop trading setup.

However, the most significant disadvantage lies in the risk exposure. Day trading often demands a significant initial capital outlay, and losses can directly affect your pocket. Plus, without a firm’s backing or institutional support, you’re essentially on your own in the ruthless financial markets.

Choosing Between Prop Trading and Day Trading

When choosing between prop trading and day trading, the decision ultimately comes down to your personal circumstances, goals, and risk tolerance. Here’s a brief guide on what to consider:

Capital: If you have ample capital and are willing to bear the potential losses, day trading could be a suitable option. On the other hand, if your capital is limited or you’d rather not risk your own money, prop trading offers an attractive alternative.

Support: Day traders often have to navigate the markets on their own. If you’re comfortable with this level of independence and are confident in your market knowledge and decision-making abilities, day trading could be the way to go. However, if you’d appreciate the additional support, resources, and guidance that a prop trading firm offers, then prop trading may be more appealing.

Flexibility: Day trading offers greater flexibility as you’re free to use any strategy and take any trade that fits within your risk parameters. With prop trading, you’re bound by the rules and strategies of the firm. If you value this independence and flexibility, day trading is likely the better choice.

Risk Tolerance: Day trading can lead to significant losses that directly impact your personal wealth, especially if you’re using high leverage. Prop trading firms absorb the losses, which can alleviate some of this pressure. If you’re risk-averse, prop trading might be a safer bet.

Career Goals: If you’re looking to build a career in finance or trading, working with a prop trading firm could provide invaluable experience and connections. On the other hand, successful day traders can achieve a great deal of financial independence and freedom.

Both prop trading and day trading have their pros and cons. When deciding between the two, carefully consider your financial situation, your trading skills and knowledge, and your long-term goals. Remember, successful trading isn’t about quick profits; it’s about developing a robust, sustainable strategy that aligns with your risk tolerance and financial objectives. Always take the time to research and consider your options thoroughly before jumping into the trading arena.

Key Skills Required for Prop Trading and Day Trading

While the decision between prop trading and day trading rests on factors like capital, support, flexibility, risk tolerance, and career goals, your success in either field will depend largely on your skill set. Both trading methods require a unique blend of skills, some of which overlap:

Analytical Skills: Whether you’re a day trader or a prop trader, strong analytical skills are essential. You need to quickly process vast amounts of data and identify potential opportunities. This could involve scrutinizing financial news, reading market trends, and interpreting complex charts and graphs.

Risk Management: Both types of trading involve substantial risk. You need to understand this risk, and more importantly, know how to manage it. This often involves setting stop losses and knowing when to cut losses on a bad trade.

Discipline: Trading requires a great deal of discipline. You must develop and stick to a strategy, resisting the urge to make impulsive decisions based on market fluctuations or emotions.

Knowledge of Financial Markets: Both trading styles require a deep understanding of the financial markets. This includes knowledge of different asset classes, market indicators, economic factors that influence markets, and understanding of geopolitical events.

Tech Savviness: Trading today heavily relies on technology. You need to be comfortable with trading platforms, algorithms, and perhaps even high-frequency trading if you’re a prop trader. Day traders, on the other hand, need to use technology for market research and executing trades.

Emotional Control: The financial markets can be a roller coaster of highs and lows, and it’s crucial not to let your emotions drive your decisions. Both day traders and prop traders need to stay cool-headed, even in the face of substantial losses.

In the end, no matter the trading method you choose, it’s crucial to continuously learn, adapt, and grow your skills. It might be beneficial to participate in training programs, mentorships, or online courses to refine your abilities and stay updated with market trends. It’s a path that requires dedication and commitment, but with the right approach, it can be rewarding.

Becoming a Funded Prop Trader: Steps and Platforms

If you are drawn to the idea of trading with firm capital, you might be considering becoming a funded prop trader. The good news is that several firms offer the opportunity to trade with their money, providing you prove your trading skills and meet their requirements. Below, we explore several of these platforms, along with the steps you need to take to become a funded prop trader.

Understand the Basics: Before diving into prop trading, it’s crucial to have a solid understanding of the financial markets, trading strategies, and risk management. Trading education can come in many forms, including books, courses, webinars, and mentorships.

Choose a Prop Trading Firm: The next step is to choose a prop trading firm. Each firm has its unique benefits, requirements, and trading conditions, so it’s essential to do your research. Here are some of the leading firms in the sector:

  • TopstepTrader: TopstepTrader offers a funded account to trade futures and forex. Their program involves a two-step evaluation process, which, once passed, gives you access to their capital. Save 20% via our exclusive link!
  • Elite Trader Funding: Elite Trader Funding provides a straight-forward funded trader program, offering traders up to $1,000,000 in funding without any evaluation tests. Use coupon code ETF4EVER for 65% off!
  • City Traders Imperium: City Traders Imperium offers forex trader funding with generous profit splits. They also provide personal coaching to help traders improve their skills. Use coupon code CTI10% for 10% off!
  • True Forex Funds: True Forex Funds offers an evaluation process that consists of demo and live trading. Upon successful completion, traders receive 100% of the first $5,000 in profits.
  • FTMO: FTMO provides a challenge and a verification stage to evaluate traders. Once these stages are completed successfully, traders gain access to an FTMO funded account.

Pass the Evaluation Process: Most funded prop trading firms require traders to pass an evaluation or challenge before gaining access to firm capital. These evaluations typically involve trading a demo account while adhering to specific rules and targets. It’s an opportunity to showcase your trading skills and your ability to manage risk effectively.

Start Trading: Once you’ve passed the evaluation, you can begin trading with the firm’s capital. You’ll typically receive a percentage of the profits you make, with the rest going to the firm.

Continuous Learning and Improvement: Even after becoming a funded prop trader, the journey doesn’t end. It’s essential to continuously evaluate your trading performance, learn from your mistakes, and refine your strategies.

Remember, each of these firms offers a unique proposition, and it’s essential to choose one that aligns with your trading style, goals, and risk appetite. With hard work and dedication, you can become a successful funded prop trader. Click here for a list of other top prop trading firms.


Prop trading and day trading both have their unique set of advantages and disadvantages. To determine the right approach for you, it’s important to consider your financial goals, trading expertise, risk appetite, and resources.

While prop trading offers a safety net against potential losses and provides you access to the firm’s tools and resources, it can be restrictive due to guidelines and risk management policies. Meanwhile, day trading offers more freedom and flexibility, but it also comes with larger risk exposure as you’re mainly trading with your own capital.

You have all the information to make a choice based on your preferences and circumstances. Consider your options carefully before making a decision, as both methods have the potential to be profitable, but equally, both also carry significant risks.

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Jeremy Biberdorf
Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. He's a father of 2 beautiful girls, a dog owner, a long-time online entrepreneur and an investing enthusiast.

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