Where do you see this?
In news articles about financial institutions or in the earnings reports of banks.
What does it mean?
When a bank, brokerage or other financial institution trades for its own profit, this is known as proprietary trading. This is in contrast to the bank trading on behalf of a customer, where it gets a commission rather than a share of the profits.
Why is it important?
Proprietary trading is regarded as one of the principal causes of the recent financial crisis.
Wall Street gaint Lehman Brothers was bankrupted by its trading losses, and its counterparts also incurred huge losses. This in turn disrupted the banking system and caused a liquidity crunch, leading to the global crisis.
Just two weeks ago, America bank JPMorgan reported a trading loss of US$2 billion (S$2.5 billion) or more.
While it is a relatively small amount, given the bank's assets, the loss has angered shareholders and shaken equity markets.
So you want to use the term. Just say...
"It is risky if a bank earns a large proportion of its profits through proprietary trading."
invest, The Sunday Times, May 20, 2012, Pg 37
Prop trading means you use your own formula such as stats arbitage blah blah to hijack the stock market to trade. If you can hijack the curve to go turtle, you can use the compound to leverage. Ok?