The last decade of the 20th century saw the stock market that was once the realm of long term professional traders become far more accessible to a wider spectrum of investors. These opportunities led to heavy interest in day trading and from this spawned a new breed of investor that now had the knowledge to be able to utilize not only his own capital, but that of and investment firm with great success. Known as partnership prop trading, this type of trading combines funds to provide far more leverage in the market.
The majority of investment companies are there to do far more than just buy and sell stocks for their clients, they also trade stocks and bonds for themselves in order to assure a profit. While they keep their prop trading accounts separate from those of their clients, they still use them as a basis for their research and the knowledge gained to profit not only themselves, but their clients as well. The term prop trading indicates using the firm's money to invest with and the prop trader then receives a percentage of any profit he makes for the company as compensation.
Accordingly there are two main types of prop trading partnership accounts, the first is wholly owned by the investment firm and all of the investing capital belongs to them. With this type of account the prop trader makes his money based on a percentage of the profit he generates. The second involves using not only the capital from the investing firm, but that of the prop trader as well. This is likely to be the most profitable account as not only does the trader get paid a percentage of the investment firm's profits, but he gets to keep all of the profit his investments generate.
Typically speaking prop trading tends to be very short term in nature and those dedicated companies that invest only with their own capital, known as "Prop Shops" use the latest in computerized trading software to facilitate their trades.
Very few of these investors hold their position overnight; instead they prefer to make several different trades for profit during the market day. At the end of the day they pull their assets back and begin again the next day. They tend to follow the trends more closely allowing them to get in as low as possible and get back out before the stocks peak and retreat.
Oddly most people have the misconception that most of the profit generated by investment banks comes from the fees and commissions they charge. In reality it is the prop trading that brings in the vast majority of their money. However, this information is not generally released to the general public so that they do not realize just how much the banks control the markets.
If you would like to learn more about prop trading or anything else to do with trading on the stock market, visit the Cy Group Online. They are experts in the markets and provide a full line of training to help you get ahead.