When a bank, brokerage or other financial institution trades on its own account rather than on behalf of a customer.
In simple terms, proprietary or 'prop trading' is where a trading desk, using the Company's own capital and balance sheet, carries out trades in various instruments, often for speculative purposes.
They can be ordinary shares and bonds traded on exchanges but are more often derivatives - either exchange-traded or in the over-the-counter markets - or foreign exchange.
So-called "pure" proprietary trading is where traders trade for the bank's own profit, unrelated to client business. These traders are generally "walled off" from the rest of the bank, and generate only a portion of total trading revenues.
It was over 150 years ago when an American Industrialist named Cyrus McCormick invented the first mechanical reaper. This piece of machinery went on to dramatically increase the volume of wheat production throughout America.
Chicago become a commercial hub due to its railroad and telegraph lines connecting it with the East Coast and farmers came from every surrounding state to sell their wheat at a good price. Unfortunately, Chicago at this point in time was lacking in both weighing and storage facilities and farmers would often find themselves beholden to the dealer.
It was not long before a ‘SPOT’ market was created and wheat/grain would be delivered in exchange for immediate payment. This soon evolved into the ‘futures contract’ as we know it today where farmers and dealers would agree to a future price against future delivery. This would be signed for by both parties and the very first ‘futures contracts’ came into existence.
Times have dramatically moved on now from bushels of wheat and both Securities and Derivatives are key drivers within today’s financial markets, providing a host of risk protection strategies and a diverse range of investment opportunities.
Even up until 30 years ago, these markets were still relatively small and domestic. It has only truly been the advancement in modern technology that has enabled these objects to evolve into the instruments that we see today and a £350 trillion industry.
The global trading platform managed through technology enables traders from all around the world to participate in the largest trading boom ever known to mankind. Although predominantly a wholesale market developed for banks, hedge funds, investment firms and corporate entities the market has seen a huge influx of trade volume from the domestic markets and civilian traders.
It is within the Brent Crude and WTI Crude Futures Markets that we trade using our knowledge from the Physical Markets combined with Technical Analysis Charting Strategies to take an investment view on whether the market will go up 'bullish' or go down 'bearish'.