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Finance GlossaryProprietary Trading
Proprietary Trading
Definition of Proprietary Trading
Proprietary trading is when a financial firm or commercial bank uses its own money to trade stocks, bonds, options, commodities, or other financial instruments, as opposed to client money. The purpose is to produce profits directly to the firm. This type of trading involves market-making, arbitrage, and various speculative strategies. Separated from the client's business to avoid conflicts. Involves higher risk-taking than client brokerage.
Related Terms
Capital Gains Exemption
Capital gains exemption is the tax break that a government offers on profits earned by selling assets. Generally, an investor must pay a tax on the short-term capital gains or long-term capital gains earned.
But in certain cases, the government allows investors to offset taxes. For example, if an investor sells property and reinvests the entire amount back again into another property, they can avail of capital gains exemption.
But in certain cases, the government allows investors to offset taxes. For example, if an investor sells property and reinvests the entire amount back again into another property, they can avail of capital gains exemption.
Market Lot
Market Lot is the minimum number of shares or contracts that must be bought or sold in a single trade. It is set by the exchange to standardize trading. For example, if the market lot for a stock is 100 shares, trades must be placed in multiples of 100.
Shooting Star
A shooting star refers to a bearish candlestick pattern that appears after an uptrend. This pattern has a small body close to the low in a day, and a long upper wick. This shows that buyers pushed the prices up, but by the close, sellers took control over the stock. A shooting star often points to a possible trend reversal or short-term weakness.
Identifiable Asset
An identifiable asset is a tangible or intangible asset that be assigned a fair value at any point in time. This concept is important during acquisitions and mergers as not all assets on a company’s balance sheet can easily be valued.
Simple examlpeps of identifiable assets include machinery. You can easily identify machinery as a separate entity and assign it a value based on various factors.
Simple examlpeps of identifiable assets include machinery. You can easily identify machinery as a separate entity and assign it a value based on various factors.
Systematic Investment Plan (SIP)
A systematic investment plan is a method in which an investor can contribute a fixed amount regularly to mutual funds. Usually, investors maintain a monthly frequency for SIPs. This investment strategy helps them build wealth over time through discipline. The power of compounding comes into play, while the rupee-cost averaging reduces the impact of volatility in the market. SIP is one of the most effective and popular tactics used in goal-based investments.
Dividend Reinvestment Plan (DRIP)
A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.
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