> Nobody is arguing that you shouldn't start a prop trading firm.

I disagree. People are absolutely arguing that nobody should start a prop firm because you can't beat the market. That the prop funds that succeed are just those that have gotten lucky in the short term. That everybody should put their money in index funds instead. I know you don't believe this, but it's a common belief for sure.

I think that if all retail investors and all institutional investors exclusively invest in passive funds the market will get out of whack. We're talking about all pension funds, university endowments, private trusts, all moving to index funds. All households together own about 80% of the stock market (direct + indirect ownership). Hedge funds another 4%. Prop trading firms probably less than 1%. There are over 3500 publicly listed US equities and another 10,000 OTC. Deep analysis on every equity is needed to determine if it is fairly valued; no way prop firms can take on this gargantuan task by themselves.

Not to mention that index funds are long-only. Very few hedge funds are. If almost everybody moved to index funds the long-only bias by itself could be disastrous.