What Is Proprietary Trading?

When it comes to trading, the people who are often spoken about are traders or investors. These are individuals who are independent and are investing for their own personal wealth creation. However, there are instances when the people trading are companies or even banks and they are doing it for their own gain.

When a company or a financial institution is engaging in trading to further its own profits, it is said to be proprietary trading. These are instances when companies are not trading on behalf of someone, or are gaining from their own stock. When a company participates in the markets, they are of the belief that they have an advantage which will get them a lot of gains.

A detailed look at Proprietary Trading

When a brokerage company or an investment bank decides to dip its hands into the financial markets, it is known as proprietary trading. When they conduct proprietary trading, an institution is using its own capital and their balance sheet to carry out financial transactions. When such trades happen, they are usually speculative and the trades are conducted in products that are either highly complex or are derivative.


  • More profits for financial institutions that carry out these trades
  • 100% of all profits made from such trades because usually such firms earn an income through commissions
  • Stockpiling securities. When a company is trading directly, it gains an inventory of speculative stock that it can then offer its clients.
  • Preparing for markets that aren’t liquid any longer
  • Growing influence over a financial market
  • If a company has to be an effective proprietary trader, one of the main things that it must keep in mind are the clients they service. If a proprietary trade goes horribly wrong, then, the money they are losing can impact the business they get since clients will not be too happy with a concern that can’t make profits.

Any company that engages in proprietary trading has a separate branch for proprietary trading. This is a mostly autonomous entity and is in no way related to client servicing or even with bringing revenue that is related to clients. When a company’s proprietary trading begins to earn it profits, its stature in the market as a major player grows. Sometimes, a client of a company would want to trade a large volume of securities or even an asset that is not liquid. At his juncture, a company’s proprietary trading desk enters the fray as a buyer and will help the client with such a trade. Of course, now there is also the option of using trading bots like Fincrowd App.