Prop Trading VS Hedge Funds: Which is Better? (Pros & Cons)

Prop Trading vs Hedge Funds

Federica D’Ambrosio

Senior Trader and CFO

Federica D’Ambrosio is a Senior Trader and CFO at Audacity Capital. She graduated in Finance from Luiss University enhancing her knowledge on global markets completing a Master of Science at Fordham university in New York.

Both prop trading and hedge funds aim to make money by buying and selling investment products in the market. While both are meant to make profits, the ways they operate and the kind of risks they take are very dissimilar.

As a trader, you may have plenty of questions about prop trading vs. hedge funds, especially if you are new to the industry. One thing you should know about these investing methods is that they can work or not work for you depending on the strategies you use. But do not worry about that because, in this article, we will ensure you understand hedge fund vs. prop trading before getting yourself into the investing methods.

What Does Proprietary Trading Entail?

Proprietary trading, also known as “prop trading,” occurs when a bank or a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with its own money instead of its customers’ money to make a profit for itself. Banks and companies engage in proprietary trading because they believe they have an informational advantage over the rest of the market.

They may use proprietary trading as a way to hedge against other investments whenever there is uncertainty about how those particular investments may perform in the future. These banks or prop companies have a way to offset their losses whenever it occurs.

The good news is that here in our company, we never ask prop traders to refund the money in case of a loss. We understand that it is part of trading. But as much as that is the case, we always ensure our traders are professional, and we provide them with all the necessary materials to help them trade effortlessly.

Understanding What Proprietary Forex Traders Do

Proprietary traders are usually highly-skilled and well-educated individuals who trade on behalf of their employer’s capital rather than for clients. These traders are expected to generate profits for the bank or firm by using their own judgment without consulting with clients about whether or not to buy or sell.

In addition to making trades, proprietary traders are also responsible for keeping abreast of current events that affect financial markets, both at home and abroad. This could include anything from political unrest in another country to changes in tax laws affecting the financial industry. Proprietary traders generally work in specialized prop trading firms and hedge funds that focus on certain markets or types of trading strategies. Therefore, prop traders must be fully aware of quant hedge funds vs. prop trading to make sound decisions.

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We offer a 50-50% profit split, with 10% drawdown and you’re not liable to loses.

How Does Hedge Fund Work?

A hedge fund is a private partnership that uses pooled funds and employs different strategies to earn active returns for its investors. They may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with little or no regard to the short-term movement of prices.

Hedge funds are generally open only to sophisticated investors who meet specific wealth or income requirements. In short, they are not easily accessible to the general public and make use of large deposits used to invest in various assets. Some of the most common hedge fund features are;

  • Fewer regulations
  • Uses a range of funds and invests the fund in different financial markets.
  • It uses flexible investing strategies
  • Not all hedge fund firms need to register with SEC.

Prop Trading Vs. Hedge Fund Requirements and Fees

It is important to dig more into these two investing methods to know which one is the best. One thing that many traders would want to know is prop trading firm pay vs. hedge fund as it will help them know the way forward. Keep reading to understand how the firms operate.

To become a prop trader, you must have a few qualifications to be accepted. Here at our prop trading firm, we will ask you a few questions and even interview you to ensure you qualify for the position. We basically provide our traders with a fully funded account, and the best part is that we split our profits with our traders 50/50, which is a win-win situation. But when it comes to other prop firms, you may be asked for a participation fee. Therefore, it is crucial to check for the requirements of any prop firm before joining one.

On the other hand, a hedge fund company does not have limits. Investors can invest any amount they are comfortable with. However, they must be people with huge assets of at least $200,000 to 5 million dollars. This is simply because hedge funds invest aggressively in all sorts of financial markets, which explains why they take funds from different sources. When it comes to the fees, investors are usually charged depending on the number of assets under the hedge fund management. This is 2% and 20% of assets and returns, respectively.

The Main Differences between Prop Trading and Hedge Funds

Prop trading vs. hedge fund is one of the most discussed topics in regard to trading. This means that you must understand it in depth to become a professional trader. The good news is that there are hedge fund vs. prop trading stack exchange that can help you understand more about these investment strategies. But all in all, they are primarily differentiated in terms of;

  • Flexibility: Unlike hedge funds, prop trading firms have restrictions. But one question is, do hedge funds do prop trading? Yes. Hedge funds invest in bonds, stocks, and derivatives just like prop firms. The only difference is that hedge funds do not have regulations.
  • Investment Model: When looking at quantitative hedge funds vs. prop trading firm, it is worth noting that they use different investing models. Hedge funds are a much safer investment when you are uncertain as an investor. Even though prop trading is the same, it is much riskier as you are using a prop firm’s money to profit.

Leverage: When it comes to leverage, hedge funds use aggressive techniques to manage their assets. Most of its funds are sourced from pensions, life insurance, wealthy individuals, endowments, etc. On the other hand, proprietary trading uses commodities, credit products, interest rates, etc.

Start Trading Today With a Reliable Firm

Trading may not be glamorous for many, but having looked at prop trading vs. hedge fund, it can be easier to decide which one is the most suitable. Many individuals say that prop traders have an easier time making money than hedge fund managers. If you also feel the same, we welcome you to our prop trading firm, Audacity capital. The signup process is straightforward.

Why should you join our Funded Trader Program?
  • Fully funded trading account.
  • Big profits 50-50 % profit split.
  • Mobile International Trading.
  • You’re not liable to losses.
  • 10% Drawdown.
  • Robust Technology and Deep Institutional Liquidity.

Frequently Asked Questions About Prop trading vs Hedge funds

  • What are the differences between Prop and Hedge Fund trading?

    Prop trading vs. hedge fund is one of the most discussed topics in regard to trading. This means that you must understand it in depth to become a professional trader. The good news is that there are hedge fund vs. prop trading stack exchange that can help you understand more about these investment strategies. But all in all, they are primarily differentiated in terms of;

    Flexibility: Unlike hedge funds, prop trading firms have restrictions. But one question is, do hedge funds do prop trading? Yes. Hedge funds invest in bonds, stocks, and derivatives just like prop firms. The only difference is that hedge funds do not have regulations.
    Investment Model: When looking at quantitative hedge funds vs. prop trading firm, it is worth noting that they use different investing models. Hedge funds are a much safer investment when you are uncertain as an investor. Even though prop trading is the same, it is much riskier as you are using a prop firm’s money to profit.

    Leverage: When it comes to leverage, hedge funds use aggressive techniques to manage their assets. Most of its funds are sourced from pensions, life insurance, wealthy individuals, endowments, etc. On the other hand, proprietary trading uses commodities, credit products, interest rates, etc.

  • Which is better? Prop vs Hedge fund trading

    Both prop trading and hedge funds aim to make money by buying and selling investment products in the market. While both are meant to make profits, the ways they operate and the kind of risks they take are very dissimilar.

    As a trader, you may have plenty of questions about prop trading vs. hedge funds, especially if you are new to the industry. One thing you should know about these investing methods is that they can work or not work for you depending on the strategies you use. But do not worry about that because, in this article, we will ensure you understand hedge fund vs. prop trading before getting yourself into the investing methods.