Proprietary trading: Difference between revisions

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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]^[2]

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.^[3]

Famous traders

Trader Nick Leeson took down Barings Bank with unauthorized proprietary positions. UBS trader Kweku Adoboli lost $2.3 billion of the bank's money and was convicted for his actions.^[4]^[5]

Armin S, a German private trader, sued BNP Paribas for 152m EUR because they sold to him structured products for 108 EUR each which were worth 54 00 EUR.^[6]

Notable proprietary trading firms

References

^ Heather Stewart (21 January 2010). "What is 'proprietary trading'?". The Guardian.
^ Arya D Stric (21 January 2025). "Proprietary Trading". The Guardian.
^ "Proprietary Trading: What It Is & Related Trading Firms". DayTradeTheWorld. 28 September 2020.
^ dzawu, moses (22 January 2020). "After Losing $2.3 Billion at UBS He Now Seeks Redemption in Ghanaian Bonds". Bloomberg.com.
^ dalton, samantha (20 November 2012). "Kweku Adoboli: From 'rising star' to rogue trader". BBC News.
^ Binham, Caroline (2018-12-20). "BNP failed to book traders in Germany for a week". Financial Times.

Hedge funds

Investment
strategy

Arbitrage / relative value	Capital structure arbitrage Convertible arbitrage Equity market neutral Fixed income arbitrage / fixed-income relative-value investing Statistical arbitrage Volatility arbitrage
Event-driven	Shareholder activism Distressed securities Risk arbitrage Special situation
Directional	Convergence trade Commodity trading advisors / managed futures account Dedicated short Global macro Long/short equity Trend following
Other	Fund of hedge funds / Multi-manager

Trading

Related
terms

Markets	Commodities Derivatives Equity Fixed income Foreign exchange Money markets Structured securities
Misc	Absolute return Arbitrage pricing theory Assets under management Black–Scholes model (Greeks: delta neutral) Capital asset pricing model (alpha / beta / security characteristic line) Fundamental analysis Hedge Securitization Short Taxation of private equity and hedge funds Technical analysis

Investors

Governance

v t e Financial markets
Types of markets	Primary market Secondary market Third market Fourth market
Types of stocks	Common stock Golden share Preferred stock Restricted stock Tracking stock
Share capital	Authorised capital Issued shares Shares outstanding Treasury stock
Participants	Broker Floor broker Inter-dealer broker Broker-dealer Market maker Trader Floor trader Proprietary trader Quantitative analyst Investor Hedger Speculator Arbitrager Scalper Regulator
Trading venues	Exchange List of major stock exchanges Over-the-counter (off-exchange) Alternative trading system (ATS) Multilateral trading facility (MTF) Electronic communication network (ECN) Direct market access (DMA) Straight-through processing (STP) Dark pool (private exchange) Crossing network Liquidity aggregator
Stock valuation	Alpha Arbitrage pricing theory (APT) Beta Buffett indicator (Cap-to-GDP) Book value (BV) Capital asset pricing model (CAPM) Capital market line (CML) Dividend discount model (DDM) Dividend yield Earnings yield EV/EBITDA Fed model Net asset value (NAV) Security characteristic line Security market line (SML) T-model
Trading theories and strategies	Algorithmic trading Buy and hold Contrarian investing Dollar cost averaging Efficient-market hypothesis (EMH) Fundamental analysis Growth stock Market timing Modern portfolio theory (MPT) Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory (PMPT) Random walk hypothesis (RMH) Sector rotation Style investing Swing trading Technical analysis Trend following Value averaging Value investing
Related terms	Bid–ask spread Block trade Cross listing Dividend Dual-listed company DuPont analysis Efficient frontier Financial law Flight-to-quality Government bond Greenspan put Haircut Initial public offering (IPO) Long Mandatory offer Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Order book Position Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Short squeeze Slippage Speculation Squeeze-out Stock dilution Stock exchange Stock market index Stock split Stock swap Trade Tender offer Uptick rule Volatility Voting interest Yield

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 {{Short description|Practice of trading financial instruments using a firm's own money}}
 {{More citations needed|date=December 2020}}
-'''Proprietary trading''' (also known as '''prop trading''') occurs when a [[Trader (finance)|trader]] trades [[stock]]s, [[Bond (finance)|bond]]s, [[Currency|currencies]], [[Commodity|commodities]], their [[derivative (finance)|derivatives]], or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.<ref name=Guardian>{{cite news |url=https://www.theguardian.com/business/2010/jan/21/proprietary-trading-wall-street-banks |title=What is 'proprietary trading'? |newspaper=[[The Guardian]] |author=Heather Stewart |date=21 January 2010}}</ref>
+'''Proprietary trading''' (also known as '''prop trading''') occurs when a [[Trader (finance)|trader]] trades [[stock]]s, [[Bond (finance)|bond]]s, [[Currency|currencies]], [[Commodity|commodities]], their [[derivative (finance)|derivatives]], or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.<ref >{{cite news |url=https://www.theguardian.com/business/2010/jan/21/proprietary-trading-wall-street-banks |title=What is 'proprietary trading'? |newspaper=[[The Guardian]] |author=Heather Stewart |date=21 January 2010}}</ref><ref name=Guardian>{{cite news |url=https://fundedtradermarkets.com/ |title=Proprietary Trading |newspaper=[[The Guardian]] |author=Arya D Stric |date=21 January 2025}}</ref>
 Proprietary traders may use a variety of strategies such as [[index arbitrage]], [[statistical arbitrage]], [[risk arbitrage|merger arbitrage]], [[fundamental analysis]], [[volatility arbitrage]], or [[global macro]] trading, much like a [[hedge fund]].<ref>{{cite web |url=https://www.daytradetheworld.com/trading-blog/proprietary-trading-your-complete-guide/ |title=Proprietary Trading: What It Is & Related Trading Firms |date=28 September 2020 |publisher=DayTradeTheWorld}}</ref>

Proprietary trading: Difference between revisions

Revision as of 20:16, 13 April 2025

Famous traders

Notable proprietary trading firms

See also

References