Proprietary trading (also "prop trading") occurs when a trader trades
stocks,
bonds,
currencies,
commodities, their
derivatives, or other financial instruments with the firm's own money, as opposed to depositors' money, so as to make a profit for itself. Proprietary traders may use a variety of strategies such as
index arbitrage,
statistical arbitrage,
merger arbitrage,
fundamental analysis,
volatility arbitrage or
global macro trading, much like a
hedge fund. Many reporters and analysts believe that large banks purposely leave ambiguous the proportion of proprietary versus non-proprietary trading, because it is felt that proprietary trading is riskier and results in more
volatile profits.