The short answer is that there are two very different stories here. Proprietary trading, firms trading their own capital, has existed in some form for over a century and had its first big boom inside banks in the 1980s. But the prop firms most people mean today, the online “challenge” firms that fund retail traders, became popular much more recently, taking off through the 2010s and exploding in popularity in the early 2020s.
To understand why, it helps to walk through how the industry evolved from exclusive bank trading desks to the accessible, internet-based model that anyone can join today.
The Early Roots
The idea behind prop trading goes back to the early days of the stock markets. Before modern regulation, financial institutions routinely traded financial instruments with their own capital to profit from market moves. But prop trading as a distinct, recognizable industry only started to take shape around the middle of the 20th century. In its earliest recognizable form, prop firms were often brick-and-mortar businesses where individual traders came in to learn and trade.
The 1980s: The First Boom Inside Banks
The “golden era” of proprietary trading arrived in the 1980s. United States financial markets were being deregulated, and as restrictions tied to the Glass-Steagall Act were loosened, large banks and institutions were free to take on riskier activities. This is when standalone proprietary trading desks rose to prominence inside bigger banks. Seasoned traders set ambitious profit targets and used the bank’s capital to take positions across financial markets. If you’re asking when prop trading first became a major force, this is it, but it was an institutional phenomenon, open only to traders with the connections and credentials to land a seat at a bank.
The 1990s and 2000s: Technology Opens the Door
The 1990s brought a pivotal shift: electronic trading. As markets moved onto screens, they became far more accessible, and experienced traders could begin using strategies and tools that had previously been the exclusive territory of the biggest institutions. Prop trading firms were among the earliest adopters of algorithms, a thread that runs through to today’s widespread high-frequency trading.
Through the 2000s, as the world’s markets became more interconnected, prop trading firms expanded internationally, growing their presence across financial hubs like New York, London, and Tokyo. The technology was steadily lowering the barriers, but the model was still largely institutional.
2008 and After: Regulation Pushes Prop Out of the Banks
The turning point that set up the modern industry was the 2008 financial crisis. In its aftermath, regulators tightened the rules sharply. Legislation such as the Dodd-Frank Act, and specifically the Volcker Rule, restricted banks from making certain risky or speculative bets with their own money. That forced many banks to step back from proprietary trading.
This created an opening. Prop trading firms that weren’t tied to banks, and therefore weren’t bound by the same restrictions, grew quickly through the 2010s. The exit of the banks effectively handed the space to independent firms, setting the stage for the retail model.
The 2010s and 2020s: The Retail Prop Firm Boom
This is where prop firms became popular in the sense most people now mean. Independent firms built a new, flexible model: instead of hiring traders in-house, they let anyone attempt a prop firm challenge, an evaluation where you prove your skills by hitting a profit target while managing risk, and earn access to a funded account if you pass. Combined with the internet, this democratized access to trading capital in a way that simply hadn’t existed before.
The growth accelerated dramatically into the 2020s, with a large jump in the number of online firms competing for traders. As they competed, firms pushed terms in traders’ favor, lowering profit targets, raising profit splits, and introducing trader-friendly features like one-step challenges, instant funding, and faster payout schedules. For the first time, a new generation of individual traders could access capital, tools, and information that had once belonged only to large institutions.
So, When Did They Become Popular?
It depends which kind of prop firm you mean:
- As an institutional practice, prop trading boomed in the 1980s during a wave of deregulation, concentrated inside major banks.
- As the modern retail industry, the kind that funds everyday traders through online challenges, prop firms grew through the 2010s after post-2008 regulation pushed banks out, and surged in popularity in the early 2020s as online firms multiplied.
The two are connected by a common thread: each leap in popularity came when barriers fell, deregulation in the 1980s, then the combination of regulation pushing banks out and the internet lowering the cost of access in the 2010s and 2020s. Today’s prop firm is the result of that long shift from an exclusive bank desk to an online opportunity open to skilled traders anywhere.