What is prop desk trading

What is prop desk, is there any benefits over normal account trading. I got to know that XYZ broker offering leverage for prop desk clients with zero brokage, is this not a illegal according to sebi @nithin @ShubhS9

@MEDI_MANOJ : Prop trading is where a broker uses its own balance sheet to place trades.

Usually if you have a strategy and the broker wants to deploy it - they will let you deploy it as a dealer (provided you have requisite NISM certifications) and then for using their money you pay a certain fixed return while you share profits beyond a threshold. A dealer must be an employee of a broker as per regulations. Also, the dealer must trade from a fixed location which is notified to NSE.

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Running a proprietary trading desk in a broking house is not illegal.


Thanks i need to have nism certificate?
How can i take prop Account

@MEDI_MANOJ : Yes you should have a NISM Series VIII for equity derivatives if you want to be assigned a dealer terminal to trade FNO. See here

To take a prop account you need to find a broker who is ready to fund your strategy from their balance sheet and also give you an employment contract as a dealer.

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Thanks for reply

A broking firm trading on its own money is called Prop trading. Suppose the broking firm allows customers to trade on their own money by collecting a deposit as security and having a profit share. In that case, it is as illegal as possible, especially since this is also done to circumvent the leverage restrictions. If I’d to bet, there will be some regulatory action or a circular issued on this type of activity very soon by SEBI.

If there is no brokerage, there will be interest on the money lent from the prop to the trader. There is no way any business will take risks without generating any revenue.


@nithin : Can you please elaborate on how the leverage restriction is circumvented ? Didnt understand how margins will be different for prop vs own account. Can you please elaborate for everyone’s knowledge ?

Thanks for reply

You put 1Cr, Broking firm will give you 4x leverage. SO your total trading capital is 5Cr. You need to pay interest for the 4Cr to the broking firm . 6% for intraday, if you are trading positional 12% as Interest… No Profit sharing… No Brokerage…

Behind the scenes – > Broking firms will Put your 1Cr as FD and give 5 Cr as Bank Guarantee to the clearing member. For that bank will charge yearly 1% as BG charges. Broking firms will get FD interest + 6 - 12 % as Interest from you

@nithin My understanding is correct ? In this model, If broking firm is not taking any profit share from prop traders. will it be considered a grey model?

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@nithin In this model, If broking firm is not taking any profit share from prop traders. will it be considered a grey model?

Hiring traders to firms and giving them a Fixed Monthly salary. And bonus of 10-20% on a quarterly basis on the profit employee generated. Is this the legally sound model?

If we look into Quant Prop Desk, they offer a very big amount as Annual Salary + Bonus. In my little knowledge i understand that getting an entry to a professional trading firm is very hard for a normal retail trader… And also retail broking firms with prop desk will not give their capital to trade without security deposit

As soon as you collect a security deposit from a trader, it is a way to circumvent regulations. This is not grey; this is almost black.

Normally a trader hired for salary+bonus doesn’t have to give any security deposit. But this model has no issue as long as it isn’t being done to circumvent any regulations.


In one reply you say yes to a security deposit:

In the other, you say it’s illegal:


What if the prop trader losses all in a single trade? Who pays the 4 cr?

He is not said Yes to deposit. He just confirmed the Behind the scenes

Broking firms have a dedicated Risk Management team. They will have a certain policy about daily risk & maximum risk .

They monitor and only allowed hedged trades with proper risk.

^What I have heard from people who try to sell me prop. :laughing: