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What is a Proprietary Trader?

Mary McMahon
Updated Jan 27, 2024
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A proprietary trader is someone who makes trades on behalf of the institution she or he works for. Firms which engage in proprietary trading opt to operate in the market directly to make money, rather than retaining clients, trading on their behalf, and accepting a commission based on performance. The legal position of proprietary traders varies around the world, depending on the market, as different governments regulate financial activities differently.

The practice of proprietary trading is utilized by a wide variety of financial institutions. The logic behind it is that when it is done properly, large amounts of money can be made for the parent institution, and the profit margin is bigger than it is when executing trades for clients. This can be used to bolster available capital, which can be used to do everything from lending money to bank customers to increasing the size of company profits.

The terms on which a proprietary trader works vary, depending on the firm. The trader is usually paid a commission which reflects performance on the floor. This acts as an incentive to make smart investment decisions which will earn money for the parent company. However, it can also encourage traders to make risks because they want to increase their profits and they are spending money which belongs to someone else, which can sometimes cultivate a less conservative approach to investment.

Traders with an established performance record and demonstrable skills may be offered more favorable contract terms than new traders. Trading is an industry in which people traditionally work their way through the ranks and this holds true for a proprietary trader as well. Many people start by playing a mock stock market, imagining that they have made investment decisions and seeing how they pay out, while obtaining certifications which allow them to work as traders. People are often started out with small deals and tasks, and are gradually given more responsibility as they demonstrate that they are able to handle it.

Someone who works as a proprietary trader uses a variety of skills. This type of work requires the ability to remain standing for long hours, to communicate clearly, and to work in environments which may be hot, crowded, and intense. The ability to deal with high levels of stress is critical for a proprietary trader as is the ability to make split second decisions, to stick with them, and follow them through. Hesitation can translate to big losses on the trading floor.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By julies — On Sep 21, 2011

When I am looking at investing my money in a company, I always like to do a lot of research and make sure my decision is based on sound research.

I seldom make quick decisions when I am buying or selling stock. I have a lot of respect for proprietary traders who can handle the stress and consistently do well.

I remember reading once that being a stock trader is one of the most stressful jobs there is. This is not something I would willingly take on.

Even though a successful proprietary traders salary is much more money than I make, I don't think it would be worth it to me.

By Mykol — On Sep 20, 2011

I do quite a bit of online stock trading, but having a proprietary trader job is something I would never have an interest in doing.

I think there would be an air of excitement being on the trading floor, but the pressure would be more than I would be able to handle.

It can be stressful just managing my own investments in the comfort of my own home. When you watch the stock market go up and down, you know you have no control over the market. The only control you have is how you react to it.

Although it sounds nice to be able to trade with other peoples money, there is too much responsibility and risk that goes a long with that for me to ever want a position like that.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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