Proprietary Trading (PPT)

Proprietary trading or PPT occurs when a firm does trading on stocks, currencies, bonds, commodities or other financial instruments with its own money in order to make profit. A PPT firm is basically a company which invests its own capital in work in rather than the client’s capital.  In some Proprietary trading firms, the traders receive a basic salary and a lucrative bonus structure. These traders do the trading on behalf of the firm and earn profit for them. These traders engage in trading in an effort to make money for the firm. In some cases, smaller PPTs require an outlay of capital from potential employees so as to trade at the firm. Firms, which gets involved in proprietary trading believes that they have competitive advantage which will make them earn excess returns later on.

These firms use a variety of strategies like fundamental analysis, statistical arbitrage, index arbitrage, volatility arbitrage, merger arbitrage or global macro trading somewhat like hedge fund. The evolution of PPT at banks comes to the point whereby the banks employ multiple desks for traders. These desks are often referred to as internal hedge funds inside the banks and perform isolation from client- flow traders. THE PPT desks are kept separate from knowledge of customer flow and hence they cannot get engaged in business upfront.