Prop trading
Proprietary ('prop') trading involves banks risking their own capital to make money.
Banks usually trade shares for one of three reasons. First, they may be acting as a broker to a client an institution such as a pension fund or an individual. Or the bank may be acting as a market maker buying and selling securities to fulfil its obligation to an exchange in order to allow other investors to trade.
However, proprietary trading involves banks risking their own capital to make money. They may trade equities, but also bonds, currencies or commodities. Prop trading is pure speculation and can trigger big profits or losses. For that reason critics argue that it should be split away from much safer activities, such as accepting deposits and making loans, if banks are to retain the right to future taxpayer-funded bail-outs.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Rightmove: Asking prices edge closer to record peak
Asking prices have been driven up by the top-end of the market, Rightmove has found. But how does the situation look in your area?
By Vaishali Varu Published
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?
Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
By Vaishali Varu Published