To many outside the industry, prop trading and fund management may seem like two sides of the same coin — both involve trading large amounts of capital for profit. But in reality, proprietary trading and fund management are fundamentally different in structure, purpose, accountability, and risk. Confusing the two can lead to serious misunderstandings about how capital is used, who it belongs to, and how performance is measured. This article breaks down the differences and clarifies why prop trading and fund management are not the same.

What is proprietary (prop) trading?

Prop trading involves trading with a firm’s own capital, not client funds. Traders are either employees or contractors of the prop firm, and they are given access to firm capital in exchange for a share of profits.

• Capital source: Firm-owned
• Primary objective: Generate short- to medium-term profit for the firm
• Risk tolerance: Often higher, with tighter risk controls and drawdown limits
• Accountability: Trader is accountable to the firm’s risk desk or manager
• Structure: Typically intraday, swing, or short-term algorithmic strategies
• Compensation: Profit split or salary + performance bonus

What is fund management?

Fund management involves managing client capital — typically from retail investors, institutions, or accredited individuals — with the goal of generating returns over time, while adhering to investment mandates and risk tolerances.

• Capital source: Client/investor-owned
• Primary objective: Preserve capital and achieve long-term growth
• Risk tolerance: Often more conservative and regulated
• Accountability: Fund manager is accountable to investors, regulators, and legal compliance standards
• Structure: Portfolio-based — diversified assets across equities, bonds, FX, etc.
• Compensation: Management fees (e.g. 2%) + performance fees (e.g. 20%)

Key differences between prop trading and fund management

Aspect	Proprietary Trading	Fund Management
Capital ownership	Firm-owned	Client/investor-owned
Trader’s role	Trader trades firm capital	Manager stewards external capital
Regulatory oversight	Often lower, firm-regulated internally	Higher, requires licenses and compliance
Drawdown policy	Firm-enforced, with hard stop-outs	Mandate-driven, with greater flexibility
Risk profile	More aggressive, high leverage possible	Typically conservative, risk-adjusted
Transparency required	Internal performance only	Full investor reporting, legal documentation
Psychological pressure	High, tied to performance contracts	High, tied to capital preservation trust
Public exposure	Usually private	Often public-facing (e.g. fund fact sheets)

Similarities

Despite differences, both share a few key traits:

• Require disciplined execution and strict risk management
• Rely on proven, tested strategies
• Reward consistent performance
• Penalise overexposure and emotional trading
• Offer scale and access to larger capital pools

Which is harder?

It depends.

• Prop trading is often harder psychologically for short-term traders — one mistake can end access to capital.
• Fund management is harder operationally — legal, investor relations, compliance, and long-term consistency matter more than a few winning trades.

Conclusion

Prop trading and fund management are not the same. While both involve trading skill, they operate under different pressures, capital structures, and objectives. Prop trading is about generating profits with firm capital under strict internal risk limits. Fund management is about delivering risk-adjusted returns on behalf of others — with full transparency, fiduciary responsibility, and long-term trust. Understanding the distinction is key for any trader looking to scale professionally.

To learn how to navigate both worlds — whether trading firm capital or managing external funds — enrol in our Trading Courses at Traders MBA, where we prepare you for every stage of professional trading.