Prop Trading vs Hedge Fund: What Are the Differences?

June 25, 2023


Prop trading vs hedge fund

Investors looking to earn more from their efforts have many opportunities. Two methods of investing and trading, prop trading and hedge funds, are commonly linked and uncertainty around what these terms actually are remains. Fortunately, this guide will break down prop trading vs hedge fund and show how these similar concepts differ in several ways, helping you make a more informed decision on which to participate in.

At Black Eagle Financial Group, we help investors use our resources, support, and experience to gain the most and succeed. As a trusted proprietary trading firm and financial company, we tailor our approaches to support investors. After learning more about prop trading and hedge funds, don’t hesitate to connect with our business to address any questions or inquire about our group.

Defining the Terms: Prop Trading vs Hedge Funds

Prop trading (or proprietary trading) involves a financial institution and group of experienced traders using their own capitol to return a profit. Involved participants use their combined resources and expertise to make smart financial decisions to get everyone the most money. While significant risk is present, the results can outweigh the risks and lead to direct market profit for all.

With prop trading, investors have more control over their capital, but with hedge funds, a manager looks out for their investor, or clients’ best interests. Hedge funds use a pool of capital that comes from multiple resources and clients, not their own.

Hedge funds consist of diverse groups that participate in private partnerships. They allow the hedge fund to manage their money and pay a large sum for the services and management of their capital. The hedge fund manager must return a threshold or rate of profit from their trading and financial strategies, which may involve complicated trading methods and money management. 

How Hedge Funds and Prop Trading Firms Differ

Some large differences to between prop trading vs hedge fund partnerships are:

Involved Risks

Prop trading firms often are riskier than hedge funds, as the involved institutions are using their capital to trade and invest. They have a more personal risk because less regulation occurs. They may also follow stricter guidelines when it comes to strategies.

Hedge funds do come with some risk, but have managers whose responsibility it is to ensure their clients obtain a large return. Their experience and extensive knowledge on investment strategies mean they are careful with the multiple sources of capital and how they’re using them.

Investment Model

With hedge funds, the money comes from numerous sources and investors with wealth to trade. These funds offer some protection as a manager can help manage the money and gain more back than the starting amount. Hedge funds carefully choose where their pool of money comes from and make strategic decisions to help all involved clients.

In the case of prop trading firms, they use their own money to trade assets with the hopes of gain. Skilled and knowledgeable investors join prop trading firms to use the firm’s resources to make smarter financial decisions for the firm. These groups come together to engage in what is, hopefully, a smart technique or strategy to maximize on returns.

Client Relationships

The client relationship varies greatly between hedge funds and proprietary firms. It is the job of the hedge fund to protect their clients’ investments and to act with their best interests in mind. They want to form a good, long-lasting relationship with their clients for future gains and success.

If a client is pleased with their hedge fund, they’re more likely to participate in it moving forward. The hedge fund manager will continue to achieve high returns and dependable results for the clients, while their clients will pay the manager for their work and invest their money into the fund.

With prop firms, there is little focus on client relationships because everything is for the good of the firm. The firm wants to do whatever will lead to the most profits, as the traders want to get the most back for their efforts. The firms take some profit and application fees, while the traders get another portion of the profit.


A hedge fund manager charges a management fee and large fee for their work. However, they must achieve a certain amount of gain or achieve a specific return rate threshold for their clients. Even if some losses occur, managers have to reach a specific gain to do their job as they agreed.

No commission fees occur with prop trading as traders stand to obtain direct market gains. They might have to pay initially to apply for firm and other smaller fees, but it doesn’t compare to their profit from participating in the fund. It’s a greater risk, but has more direct involvement and decision making for the eager traders.

Prop Trading vs Hedge Fund: The Key Takeaways

Although the topic is complex and exclusive in some ways, it’s easier to understand once you can tell prop trading and hedge funds apart. Here are the main points you should know about prop trading and hedge funds:

  • Hedge funds manage and utilize capital from multiple wealthy parties and resources to make a profit for their clients. On the other hand, prop firms help traders and the firm make money by directly using their own capital to take risks and trade.
  • Both practices utilize some form of risk management to protect those involved and to gain the most profit. Hedge funds are accountable to their clients, while prop firms are accountable to themselves and others in the firm, often taking a larger risk.

Work With Black Eagle Financial Group for Professional Trading Support

If you’re to start trading with a responsive team by your side, increased security, and a multitude of resources to help, you should get in touch with Black Eagle Financial Group. We have experience in the industries of hedge funds, proprietary trading, banking, and more to make the perfect team of skilled professionals to help motivated and determined traders.

It’s time to connect with our business because we offer the following perks:

  • The NIGHTVISION tool to create custom routes and hidden potential avenues
  • A helpful mentorship program to learn from experienced traders or to share your knowledge
  • Access to the reliable Prop Reports and the extra service of customized, uniquely tailored report sites
  • And other incredible benefits!

Now that you understand prop trading vs hedge fund, reach out to us for trading support. Black Eagle Financial Group uses trading platforms and other methods to assist our clients and help them achieve trading success. We’re prepared to answer your questions or concerns. You can call us at either (833) 253-2453 (toll-free) or (514) 532-0520 for more information about trading, hedge funds, and prop firms!

Share This Post

Get in Touch With Us

If you are interested in working with us or simply learning more, please reach out to us via the contact form below.

Related Posts

Lacus tristique at aliquet massa non. Purus ut velit lacus nam ut amet. Tempus in imperdiet leo.

June 1, 2024


How To Use Fundamental Analysis in Prop Trading

June 1, 2024


What Is High-Frequency Trading?

June 1, 2024


8 Trading Chart Patterns You Should Know