Prop stocks: what are they and why are there so few of them now?
Moneymark5 min read·Just now--
Equity prop firms are companies that provide traders with capital to trade stocks and other financial instruments, as opposed to the more common forex or crypto prop firms. Today, there are significantly fewer of these firms than other types of prop firms due to high regulatory barriers, the complexity of the stock market, and historical changes in the industry since the 2008 financial crisis. In this article, we will analyze what equity props are, why they are rare in today’s market, and what the prospects are for this direction.
What is equity prop trading?
Equity prop trading is a form of trading in which a financial firm uses its own capital to buy and sell stocks, exchange-traded funds (ETFs), and other equity instruments for profit. Unlike traditional brokerage services, where the firm earns commissions on client trades, a prop firm keeps all profits from successful trades (or shares them with the trader as agreed).
How it works in practice:
The firm provides the trader with access to its capital (sometimes up to $100,000+)
The trader trades stocks according to defined strategies
Profits are distributed according to a profit split scheme (the trader receives 70–90%)
The firm assumes the risk of losses
Equity props can use a variety of strategies: from classic day trading to complex algorithmic systems with high-frequency trading.
Historical Context: From Bank Desks to Independent Firms
To understand why there are so few equity prop firms today, it is necessary to look back in history.
Before 2008: Prop trading was largely the preserve of large investment banks. Their prop desks used the banks’ vast balance sheets to speculatively trade stocks, and these divisions often generated a significant portion of the banks’ profits.
2008 — Financial Crisis: It became clear that banks’ speculative operations posed a threat to the entire global economy. Regulators began to act.
2010 — Volcker Rule: This law, adopted as part of the Dodd-Frank reform, effectively prohibited commercial banks from engaging in prop trading for their own account. Banks were forced to close their prop desks.
The result: thousands of traders, risk managers, and quants left banks and started independent prop firms. But the process turned out to be much more complicated than it seemed.
Why are there so few equity prop firms? Main reasons
1. High cost of entry and technological barriers
Creating an equity prop firm requires a huge investment in technology. According to experts, from 5% to 15% of the firm’s infrastructure should be proprietary (unique, created from scratch), but even the rest of the systems are very expensive to buy and configure.
Typical costs:
High-speed data channels and FIX engines
Real-time risk management systems
Software for executing deals
Server infrastructure with minimal latency
Former bank traders who decide to open their own firm often get a “culture shock” from the price tags on top-of-the-line equipment. As one expert notes: “Most traders at big banks don’t worry about costs — the firm pays. They have the infrastructure, the support, the resources. And when you manage your own capital, suddenly you have to evaluate the infrastructure yourself and build it.”
2. Liquidity decline after bank desk closures
The closure of bank prop desks had an unintended consequence — a decline in liquidity in the stock market. Former prop traders who open their own firms no longer have access to the same amount of capital as at banks. Accordingly, they cannot provide the same depth of the market.
As David Beth, co-founder of the intermarket broker WallachBeth, comments: “These guys used to be, essentially, two-way market makers. Now there is a decline in liquidity that is directly related to the Volcker Rule and the dismantling of bank prop desks.”
3. Tough competition from other types of prop firms
Forex props and crypto props have much lower barriers to entry. They don’t require as complex a technology stack, can operate with higher leverage, and don’t face as much regulation.
Comparison:
Forex props: low entry threshold, simple platforms (MT4/MT5), less regulation
Crypto props: 24/7 market, high volatility, technological flexibility
Equity props: high entry threshold, complex regulation, strong technological infrastructure
4. Industry Consolidation in 2024–2025
The prop industry as a whole is going through a “big shake-up.” It is estimated that 80 to 100 prop firms of various types will exit the market in 2024. Among the closed companies are Funded Engineer, Propel Capital, Karma Prop Trader, Fund For Trader.
Equity props have been particularly hard hit, as their business model requires higher capital investments and has thinner margins. Firms that rely primarily on evaluation fees rather than profits from successful traders have proven to be the least resilient
Is there a future for equity prop firms?
Despite all the difficulties, equity props have not disappeared completely. They have simply become more niche and demanding.
Where they still exist:
High-frequency trading (HFT): firms that use algorithms to make microsecond trades
Market making: providing liquidity on individual stocks or ETFs
Equity day trading: small firms that finance traders who specialize in day trading stocks
What it takes to survive:
Invest in technology — without a strong infrastructure, it is impossible to compete
Diversify revenue sources — not just evaluation fees, but also real profits from traders
Transparency and compliance — regulators are closely monitoring the equity market
Capital buffer — to cover losses and investments
Conclusion
Equity prop firms today are a rare breed in the world of prop trading. There are few of them not because they are inefficient, but because the requirements for their creation and maintenance are much higher than for forex or crypto props.
The Volcker Rule closed down bank prop desks, but it did not kill the idea of prop trading in stocks. It simply moved into an independent sector, where only the strongest, best capitalized and technologically equipped players survive.
If you are a trader who wants to trade stocks through a prop firm, be prepared for stricter requirements, higher commissions and a smaller selection of companies. But if you find a stable equity prop firm, it can be a very profitable partnership.