What is a Proprietary Trader?
Proprietary trading is a term used to describe when a banks trader’s actively trade stocks, bonds, options, commodities, or other items with its own money as opposed to its customers’ money, so as to make a profit for itself.
There are two main occasions when Banks will do this;
- Firstly when a big client gives sales traders a sell order, the Investment Bank can agree to buy the entire amount of stock at a discount with the belief that it could sell pieces over time. The profit comes not from selling the stock at present value, but buying it at a discount. This is known as block trading.
- Secondly, they hire traders who’s job is to profit from short term fluctuations in different markets using the banks money. Over time these traders began to devise different strategies within the banks system to earn even more profit.
The evolution of proprietary trading at banks has come to the point whereby banks employ multiple desks of traders devoted solely to proprietary trading with the hopes of earning added profits above that of market making trading. These desks are often considered internal hedge funds within the investment bank, performing in isolation away from client-flow traders.
One of the main strategies of trading traditionally associated with proprietary trading is arbitrage. In the most basic sense, arbitrage is defined as taking advantage of a price discrepancy through the purchase/sale of certain combinations of securities to lock in a profit.
Others use technical analysis to identify buy and sell opportunities.
If I work in Proprietary Trading what will I be doing?
Traditionally, proprietary trading started many years ago when brokerages, banks and other financial institutions hired traders to use their capital to trade in the markets. If you work for one of these institutions you will typically arrive at the office early at seven to check the news and earnings reports, share ideas with the team, use proprietary technology trading tools to program your plan for the day and begin pre-market trading, normally using the futures market.
You will be glued to your screens all day ready to react quickly as opportunities present themselves.
Towards the end of the day you will meet with the proprietary team to review performance, review personal trades, record facts in your trading journal and begin preparation for the next day
The ‘proprietary trader’ label has now been extended to traders who aren’t paid a salary and who actually put up a nominal amount of their own money. This sort of prop trader gains from the use the firms capital (up to 20 times leverage), software, training and other amenities to various degrees.
If you work for a prop trading house they will often train you up on their trading strategies, sometimes requiring you to pay up front and offer you a profit share. You will be trading leveraged products during market hours.
How do I get a graduate scheme / internship / entry level job or career in Proprietary Trading?
Obtaining a graduate scheme, internship or entry level role in proprietary trading can be very challenging and competitive – though very achievable by getting your application, CV, interview and general approach right. You can guarantee that ninety percent of applicants for proprietary trading roles will not know how to apply, so getting your application in the top ten percent makes things a lot more achievable.
Approaching the company in the right way will make all the difference. Combining the right approach with a strong interview (and in some cases assessment centre) writ a strong focused tailored CV will go a long way. Make sure you have gone through the free videos on this sight by entering your name and email address in the top right of this screen underneath the video. Once you have filled this in you will have instant access to everything you need to secure your career in proprietary trading.
