How Market Makers Are Similar to Proprietary Traders
The key distinction between market makers and proprietary traders is that the market maker makes a market and the proprietary trader is a market taker. The market maker is providing liquidity to the bank’s clients while the proprietary trader is a client. The similarity is that they are both allocated capital on which they have to make a return, and every trade they do requires them to have a view on the financial market.
Take the PACAM treasury trade example in Box 7.2. The market maker has to take a view in order to make a market in the first place. He needs to decide whether this is a position he wants to hold or a position he wants to close out and in what timeframe. And, he also needs ...
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