Prop Trading VS Market Making: A Detailed Breakdown By A Trader

Have you ever wondered why when it comes to most shares in the stock market, you are able to buy and sell almost immediately? While customer demand is partly the reason for this level of …

market making vs prop trading

Have you ever wondered why when it comes to most shares in the stock market, you are able to buy and sell almost immediately?

While customer demand is partly the reason for this level of market liquidity, it may not always be the case. This is where market makers come into play.

Let’s take your house as an example. If you want to sell your house, you have to put it up for sale on the housing market and wait for someone to put in a bid before you can sell it.

Sometimes the wait can be as short as a few weeks or as long as a few months. This is because there may not be any demand for your house at the price you’ve advertised it for just yet.

The same happens in the stock market, and market makers are there to eliminate the wait time between buying and selling stock options.

You might also notice that the terms prop traders and market makers are often used in the same sentence or, in some scenarios, interchangeably. However, while prop traders can be market makers, there are explicit differences between the two professions.

This begs the question, what do market makers do, and what do prop traders do?

This article has the information you need to understand the differences between prop trading vs market making.

What Does A Market Maker Do?

Unlike the housing market, where people have to wait around for someone to make a bid before selling their house, the stock market cannot afford to wait around for people to make deals.

It needs enormous liquidity to ensure all investors can continuously buy and sell shares and other financial derivatives. Simply put, maintaining market liquidity is what a market maker does.

Throughout each business day, market makers are tasked with offering buying-and-selling price quotes for investors to take part in. Those quotes come in two parts – bid and offer.

The difference between the bid and the offer, aka the spread, is how market makers make money. So, what are the bid, the offer, and the spread?

The bid is how much market makers will pay you when you want to sell shares that you hold, whereas the offer is the price you have to pay the market makers when buying stock off them.

As you can imagine, the bid price will be lower than the offer price. The market makers want to buy the share at a lower price and sell it at a higher price.

This difference in price is how market makers make money.

What Does A Prop Trader Do?

Before we cover the similarities and differences between prop traders and market makers, we need to first describe what a prop trader is and what they do.

Prop traders work for firms that provide them with company funds to make trades for profit.

While working for a traditional prop firm as a floor trader will get you a salary, most prop firms, like FTMO, solely operate online. New traders get trained by experienced prop traders already working in the firm.

The benefit of working as a prop trader is that you do not have to worry about working for external clients and try to implement a strategy that works with their goals.

As a prop trader, you aim to be as profitable as possible. At the end of the day, you get to keep anywhere between 50 – 90% of the profits, depending on the prop firm you work with.

Difference Between Market Making VS Prop Trading

Now that you know what each type of trader does let’s talk about their similarities and differences.

Trading Objectives

Market makers are there to help external customers in trading. They exist to provide liquidity to the markets to enable investors to be able to continuously buy and sell shares.

Therefore, regardless of the volatility of a certain market, market makers have to keep serving their customers.

On the other hand, a prop trader is only concerned with making a profit for the firm they work with.

Since they make money through commissions on profitable trades, a prop trader might steer clear of volatile markets until it is relatively safe to buy in.


Since market makers are salary earners and are only required to work while the markets remain open, they have fixed hours that they need to adhere to.

Prop traders work with online firms. This allows them to work to their own schedule and choose to only trade during the most profitable hours of the day.

Although this can lead to some weekend work, the majority of the time, experienced prop traders with a good understanding of their market have a good work-life balance.


As mentioned above, market makers earn salaries. The average earnings for market makers/specialists are over $96,000, with the top 10 percent earning over $170,000.

Prop traders do not work for a salary. This means that they can go for weeks and months without making an income until they become profitable.

However, once they become good, the money a prop trader can earn is only limited to the profit they make, which can be over several hundred thousand.

Similarities Between Market Making VS Prop Trading

Making Markets

While market making isn’t the purpose of prop trading, proprietary traders can definitely cause some significant price movements if they decide to hold speculative positions in the market.

Due to prop traders trading with large company funds, they can create a high level of liquidity around their position in a trade, which is precisely what market makers are supposed to do.


While prop traders don’t serve external clients, they execute trades with their firm’s funds. Market makers also execute trades with their firm’s funds.

Market makers are traders in big banks and brokerages that use the company’s capital to provide liquidity in financial markets.

Global Market Trading

Prop traders execute trades in the global financial market to optimize and increase the profitability of their trades.

Since market makers make money on spreads, which can change depending on the volatility of the market, they hedge their trades using trades across all global financial markets.

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