no way. no no. "proprietary", remember that. a prop has no outside investors. strictly speaking, the defining line is in the legalities.
this is what i would say about the two:
most pro pros are typically ex-floor traders on major exchanges.. they invest their own money into the business, maybe with some partners. obviously, they have good credit too so they may trade on margin with their broker, whatever the account. if a junior works in a prop (investing the house money, not external investors), the principal sets some level on how much this junior can trade, or lose on a trade or over some time. if he is good, principals allow him to invest more of the house money, or increase the credit. eventually becoming a partner or leave starting his own prop. so basically, it's like a small family lol. most pro props also provide other services like brokerage for external clients (again to arbitrage and profit from client trades, or benefit from more volume traded = lower house commision). they may clear their trades themselves, or provide clearing for external clients too.
remember, a prop house and a trading "arcade" are not exactly the same. in a trading arcade, u have individual traders who trade their own pocket money at once place, and the arcade acts as the broker, and may provide credit, margins, and friendly commission rates.
now a hedge fund. of course, given the wide varaiety of hedge funds and some prop houses, it's difficult to draw the line between the two.
at extreme comparison, look at it this way: hedge funds are investors. props are market makers.
'specialists' working on floors, pro props are generally market makers, with their own money.
the benefit of a HF lies mostly in the legalities - which surrounds alot of contraversy. CTAs and HF are more or less the same thing.
HF - pooled investment fund, managed by principals with some of their own money. open only to very wealthy clients. used many strategies to trade. have prime brokers (typically banks), with very nice credit margins.
prop houses. trade on their own account - from their own pocket. no investor. may be a prop house of 1, or many partners. Atlas has 2 i think, Optiver has about 7. they leverage their positions too, but not as high as HF. if you work for a prop, you have to trade by their rules, strategy, and mainly trading their money.
trade arcades, you're on your own. nice credit/margin only if you're a genious, low commisions with high volumes.
the trouble is, on this forum, everyone is known as a 'prop'. if it is run as a full house business, than it fits what I've described above. most props that I know, are market makers.
Quote from Lights:
thx for the post.
but aren't most prop firms pooled money from traders, principals and financed cap from outside investors? the business of prop sounds similar to a hedge fund, since it's pooled monies to leverage a master account with a clearing arrangement. sounds like a hedge fund with exception of how profits are distributed to it's traders.
this is straying off a bit, but if you run a prop firm, isn't this just a variation of a hedge fund?
