A firm can also trade with its own capital to generate revenue through fiscal instruments. It is called Proprietary Trading. Firms that involve in such business processes are called Proprietary Trading Firms.
The advancement of proprietary trading at banking institutions has achieved such a level that many banking institutions hired their own proprietary traders who were solely responsible for such trading. But this kind of trading was deemed as the internal credit investment and was supposed to be carried out away from the regular client trading desks. The only peril that this carried was the high degree of risk associated with it that makes the revenue volatile in nature. Some of the renowned banking institutions have earned colossal amount of revenue by hedging internal funds.
Legal bodies that regulated the terms and conditions of fiscal instruments strictly requires that the proprietary trading should be kept away from regular trading activities of the companies clients. Although this might sound too discrete but Chinese walls or information Barriers helped to achieve the successful partition required between these two activities.
Although it might sound tempting but anybody involved in proprietary trading should also keep the risks involved in the back of their minds.
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