Proprietary trading

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Proprietary trading (also known as prop trading) occurs when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself. [1]

Contents

Proprietary traders may use a variety of strategies such as index arbitrage, statistical arbitrage, merger arbitrage, fundamental analysis, volatility arbitrage, or global macro trading, much like a hedge fund. [2]

Regulation

Following the 2008 financial crisis, some jurisdictions introduced restrictions on proprietary trading by banks. In the United States, the Volcker Rule limits deposit-taking institutions from engaging in certain types of prop trading. Independent proprietary trading firms, which do not take customer deposits, are generally not subject to these prohibitions. [3]

Notable proprietary trading firms

See also

References

  1. ↑ Heather Stewart (21 January 2010). "What is 'proprietary trading'?". The Guardian .
  2. ↑ "Proprietary Trading: What It Is & Related Trading Firms". DayTradeTheWorld. 28 September 2020.
  3. ↑ "Factbox: What is the U.S. Volcker Rule?". SEC (U.S. Securities and Exchange Commission). December 10, 2013.
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