Advertisement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

Trading: catch this coach company
Trading

Trading: catch this coach company

Bus and coach operator National Express has expanded into promising markets abroad – and it looks cheap
28 Jan 2020
How “support” and “resistance” can help you spot trading opportunities
Sponsored

How “support” and “resistance” can help you spot trading opportunities

Technical analysis can help traders manage risk and decide where to enter and exit a trade. One simple form of technical analysis is the concept of “s…
6 Jul 2020
Real exchange rate
Glossary

Real exchange rate

The real exchange rate between two currencies combines the nominal exchange rate with the ratio of the price of goods or services in two different cou…
26 Jun 2020
ESG investing
Glossary

ESG investing

ESG stands for environmental, social and corporate governance, the areas in which good behaviour is particularly sought.
19 Jun 2020

Most Popular

House price crash: UK property prices are falling – so where next?
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020
How “support” and “resistance” can help you spot trading opportunities
Sponsored

How “support” and “resistance” can help you spot trading opportunities

Technical analysis can help traders manage risk and decide where to enter and exit a trade. One simple form of technical analysis is the concept of “s…
6 Jul 2020
A first-half home run for investment trusts
Sponsored

A first-half home run for investment trusts

The investment trust sector has seen some extraordinary performance in the first half of this year. Max King looks at what's behind it, and asks: is i…
7 Jul 2020