Proprietary Trading: What It Is & Related Strategies (for 2020)

Proprietary Trading: An Helpful Explanation

Proprietary trading is also known as Prop Trading. It’s the act of trading financial products with the trading firm’s money, and it’s a generic meaning that is used in trading. This includes:

  • stocks
  • bonds
  • commodities
  • currencies

This term does not refer to the trades that are financed with money from deposits (This is the prop trading definition); it is where a trader uses the trading firm’s resources as leverage.

The trades are often risky. They use the leverage of the firm’s assets to support the deals. The risk can take in many forms, like futures and stocks exchanges, others are global exchanges, FOREX, and OTC markets. These are known in all areas of the world.

Day Trade The World™ is a prop trading firm that lets you open your own trading office (see how) and trade the global market. We offer one of the best day trading software, made to provide trading office managers and traders an advantage when trading.

Proprietary trading companies like us let you trade stocks and futures from any region of the world.

Our Markets ›

Traders use our proprietary trading software to take advantage of their strategies after learning it in the full training. They get access to more than 57 markets, and this lets them to make new strategies!

Apart of this, the prop software:

  • Opens the door in futures and options.
  • Shows patterns of risk (this is different from non prop trading firms, because they needs the right information)
  • Offer high-speed connections.
  • Allow traders to use new data in high-frequency trades
  • Has a good track record

By using the prop trading software, trades get results!

Proprietary trading firms let you to use their money to make trades, so they give access to prop trading software and use the related strategies.

3 Proprietary Trading Strategies You Should Know

#1: Volatility Arbitrage

In proprietary trading, traders who engage in Volatility Arbitrage are guessing on the changes that will happen to the value of an asset rather than what the price will be. When these changes occur, a difference will exist between the option’s guessed price and the asset’s actual market price.

How to Use it in Proprietary Trading?

In prop trading, such options are part of a portfolio that is neutral. Traders who buy these options are known as holding a long-volatility position. Those selling are said to hold a short-volatility position.

A long-volatility position is betting that the asset’s future volatility will be more than when the trade was made. Short-volatility position is betting that the future volatility will be less. These trades feature put call parity. It is not important if the options traded are puts or calls.

But some traders believe that Volatility Arbitrage is risk-free. This is not true!!

These trades rely on guessing.

The way that the asset’s implied volatility will follow in the future. There is always the possibility of a “black swan” event. Or an event that is a complete surprise and affects the value of the option.

This can be true even with portfolio-based approaches that are made to mix risks.

Maximize returns when Trading the Market Volatility

#2: Merger Arbitrage

Risk arbitrage is a hedge-fund which uses the stocks of two companies that are merging (here some tips to trade a Corporate Merger). Stocks in each company are bought and sold at the same time in an effort to guard against risks.

The main risk is that the merger will not close at all or it will be delayed. Traders who are involved with proprietary trading companies use this strategy a lot. This risk means that the target company’s stock sells for less than the stock in the merged company will sell for once the merger closes.

Traders expect that the difference between the two prices will provide them with a profit.

Prop trading jobs in india are become very popular.

How to maximize returns with a statistical arbitrage strategy

#3: Global Macro

In prop trading, traders use the Global Macro strategy to get results. They analyze information about economic conditions around the world. This way they can make an “educated guess” regarding the effect it will have on prices. Using this requires analyzing many factors in the market:

  • Emerging economies
  • Global trade imbalances
  • The strength of various currencies

Managers working in global macro differ from regular managers since they rely less on general beliefs in the stock positions. There are many prop trading jobs available for you to get started, and salary can range in different countries.

How to Trade the Emerging Markets Profitably

Proprietary Trading – Useful Links


Photo By David Blaikie 

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