When you place
an order, your broker executes it for a fee, and the profit or loss is yours.
Now picture a broker, a bank or a trading firm placing orders with its own
money instead, keeping every gain and absorbing every loss. That is proprietary
trading, or prop trading. It is also big business. In FY26, such desks earned
about ₹44,000 crore in gross profits from India’s equity derivatives, SEBI
reported. That same year, 87.7% of individual traders lost money.
What Is Proprietary Trading? Meaning and Definition
Proprietary trading, or prop trading, is when a financial firm buys and sells securities with its own capital to earn profit for itself, not commission from clients.
The firm keeps every gain and absorbs every loss.
That is the core proprietary trading meaning. Your broker, by contrast, executes your order for brokerage, and the profit or loss stays yours.
The SEBI Stock
Brokers Regulations, 2026 set the proprietary trading definition in India. It is a stock broker trading in its own account, in any segment of a recognised stock exchange. Brokers, banks and specialist trading firms typically run prop desks.
How Does Prop Trading Work?
A prop desk trades firm capital under strict limits on how much any trader may lose.
Traders, or more often computer programs, hunt for small, repeatable price gaps.
Three approaches are common:
• Market making: quoting buy and sell prices to earn the gap.
• Arbitrage: buying where a price is lower, selling where it is higher.
• Directional trading: betting a price will rise or fall.
SEBI found that in FY26, 99% of the gross profits of foreign portfolio investors (FPIs) and proprietary traders went to entities using algo trading. Their programs place orders under preset rules.
Example of Proprietary Trading: Cash-Futures Arbitrage
In this illustrative trade, a stock costs ₹1,000 in the cash (regular share) market.
Its near-month future, a contract to trade at a fixed price on a set date, costs ₹1,008. A primer on futures and options covers the basics.
The desk buys
2,000 shares (₹20 lakh) and sells 2,000 in futures. At expiry the two prices meet. At an assumed 8% yearly funding cost:
• Gross gain locked in: ₹16,000
• Funding ₹20 lakh for one month: about ₹13,300
• Left before brokerage, taxes, exchange fees and stamp duty: roughly ₹2,700
So the ₹8 futures premium is mostly the price of money. In this trade, only very low-cost desks come out ahead.
At Indiabulls
Securities, brokerage is 2.5% or ₹11 per executed order, whichever is lower, across NSE (CM, FO, CD), BSE (CM, FO) and MCX. Test your own numbers on the brokerage calculator.
It can still fail: orders may not fill at quoted prices, and an adverse move on the futures leg demands extra margin money.
To understand futures and options contracts and their role in derivatives trading, explore the F&O Trading.
Benefits of Proprietary Trading and Its Risks
The firm keeps the whole profit, and that income does not depend on client volumes. But losses come straight out of its own capital, and borrowed money magnifies them in the same proportion as gains.
For the market, desks quoting prices all day improve stock market liquidity, so your order is more likely to fill near the price you see. There is a limit. A desk keeps quoting only while quoting pays, so this liquidity can shrink.
One risk concerns you directly: a firm trading for itself and its clients faces a potential conflict of interest, which SEBI rules address.
Also Read: If you are exploring different trading approaches, learn What is Intraday Trading and how it differs from proprietary trading.
Proprietary Trading vs Hedge Funds vs Client Broking
All three involve trading, but they differ on whose money is at risk. SEBI classifies hedge funds as Category III Alternative Investment Funds (AIFs), which may use complex strategies, leverage (borrowed money) and derivatives. Despite the name, hedge funds need not practise hedging.
Proprietary trading | Hedge fund | Client broking | |
Whose money | The firm's own capital | Investors' pooled money | Your money |
Who keeps gains or losses | The firm | Investors, after fees | You |
How the firm earns | Trading gains | Fees from investors | Brokerage on your orders |
Indian rulebook | SEBI broker and exchange rules | SEBI rules for Category III AIFs | SEBI broker and exchange rules |
Going Deeper: How SEBI Separates Broker Trades From Yours
SEBI
regulations build three walls to keep a broker's own trades apart from yours:
• Disclosure: at the Know Your Client (KYC) stage, brokers must say if they trade for themselves.
• Separate terminals: the broker's own orders normally come from one designated location.
• No switching: a proprietary trade can never move into a client's account, or the reverse.
A broker that starts prop trading later must tell clients first. You will find your broker's disclosure in your account opening documents.
Indiabulls
Securities does not do proprietary trading, so it does not trade on its own account alongside any of your orders.
Conclusion
Proprietary trading means a firm risking its own capital. In India's derivatives market, the most profitable desks run on speed and low costs. Before acting on any
"prop" claim, ask:
1. Whose money is at risk?
2. Which regulator covers this activity?
3. What is my edge against a lower-cost algorithm?
For rules-based execution, IB Algo
can automate your own strategy, though without a prop desk's speed or cost edge. Whatever you trade, size each position so one loss cannot derail your plan.
