Proprietary trading (also known as prop trading) occurs when a
trader trades
stock
Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...
s,
bonds,
currencies,
commodities
In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
Th ...
, their
derivatives, or other financial instruments with the firm's own money (instead of using customer funds) to make a profit for itself.
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
A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...
.
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.
Armin S, a German private trader, sued
BNP Paribas for 152m EUR because they sold to him
structured product
A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, an ...
s for 108 EUR each which were worth 54 00 EUR.
Notable proprietary trading firms
*
Akuna Capital
*
Citadel Securities
*
DRW Trading Group
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Flow Traders
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Global Trading Systems
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Headlands Technologies
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Hudson River Trading
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IMC Financial Markets
*
Jane Street Capital
*
Jump Trading
*
Optiver
*
PEAK6
*
Quantlab
*
Radix Trading
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Susquehanna International Group
*
Tibra
*
Tower Research
*
Tradebot
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TransMarket Group
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Virtu Financial
*
XTX Markets
See also
*
Flow trading
References
{{Authority control
Financial markets