why do firms engage in proprietary trading 
financial institutions engage in proprietary trading as a way of benefitting from perceived competitive advantages and maximizing their profits since proprietary trading uses the firm s own money rather than funds belonging to its clients prop traders can take on greater levels of risk without having to answer to clients can banks engage in proprietary trading the volcker rule implemented in response to the 2007 2008 financial crisis places restrictions against large banks using their own accounts for short term proprietary trading of securities derivatives and commodity futures along with options on these instruments the rule is designed to shield customers by preventing banks from making the types of speculative investments that contributed to the great recession the bottom lineproprietary trading occurs when a financial institution carries out transactions using its own capital rather than trading on behalf of its clients the practice allows financial firms to maximize their profits as they are able to keep 100 of the investment earnings generated by proprietary trades institutions such as brokerage firms investment banks and hedge funds frequently have proprietary trading desks however there are restrictions against large banks engaging in prop trading designed to limit the speculative investments that contributed the 2007 2008 financial crisis 