How the Trading Floor Really Works

Proprietary Trading Desk Overview

The word “prop” stands for proprietary trading. In market jargon, we say that the bank is taking risk for itself. More specifically, the bank is allocating capital to a trading book strictly for the bank to profit from market price movements rather than for the purpose of client-related risk taking. The concept has been that a bank sits in a unique position in the financial markets and is able to see all the flows of client trades, client interests and possibly future trades. As a result a bank should be able to profit from this knowledge. So, if the bank knows that a client wants to do a large transaction that is likely to move the market prices, the bank can take advantage of that information and front run ...