Proprietary trading is trading done by a financial firm for its own account, as an investment or as a speculation, as opposed to trading done strictly to fill clients' orders. Because of the inherent risks associated with proprietary trading, the financial overhaul bill enacted in July 2010 includes provisions to restrict the ability of banks to engage in it.
Goldman Sachs has a long-established reputation for having aggressive proprietary trading as a significant element of its business model, though it is not the only firm to embrace proprietary trading. On the other hand, various other securities firms have long histories of shunning proprietary trading because of its risks, instead employing their securities traders strictly to facilitate order flow from clients, which is itself normally a profitable activity.
Restricting or eliminating proprietary trading poses career issues for the traders who specialize in it. In 2010, as talk of legislated and regulatory restrictions mounted, many top proprietary traders started seeking employment at hedge funds.
