Proprietary trading and agency trading are two different types of trading that are carried out by financial institutions or individual traders.

Proprietary trading, also known as “prop trading,” refers to trading activities that are undertaken using own capital, rather than on behalf of a client. In proprietary trading, the financial institution or individual are taking positions in the market with the goal of generating profits for itself. Proprietary traders are typically focused on making short-term profits through the buying and selling of financial instruments, such as stocks, bonds, currencies or various derivative instruments.

Agency trading, on the other hand, refers to trading activities that are undertaken on behalf of a client. In agency trading, the financial institution acts as an agent, executing trades on behalf of the client according to the client’s instructions. The financial institution does not take positions in the market for its own account, but rather serves as a facilitator for the client’s trades and aims to avoid any market exposure. Agency traders are typically focused on executing trades efficiently and accurately, rather than on making profits for the financial institution. The most common example of agency only trading institutions are custodians. They execute the orders on behalf of the clients (whether individual or institutional) or their agents (such as investment / asset managers).

Proprietary trading and agency trading can both be carried out by banks, broker-dealers, and other financial institutions. The individuals can engage only in the proprietary trading. The type of trading that a financial institution engages in will depend on its business model and the services it offers to clients.

Please note, none of the information on this blog represents the opinion of my employer and all information does not represent a financial advice.