Proprietary trading is the trading activity of financial institutions or independent investment firms that use their own capital to seek profit instead of trading using clients’ funds. Financial regulators require that proprietary trading activities are separated from client-related trading activities and information.
To generate profitability for the firm, proprietary traders employ trading strategies such as momentum trading, statistical arbitrage, pair trading, news sentiment, fundamental analysis, long-short investment, and high-frequency trading. As a best practice, the firm usually implements a robust risk management policy to monitor and control such trading activities.
Proprietary trading desks rely on analytical tools like MATLAB® that let them define trading strategies, integrate with financial data feeds, and are able to be deployed into a production environment. Common tasks for developing and implementing proprietary trading strategies include: