What type of trading is characterized by trading with a firm's own money?

Proprietary trading is a type of trading where a firm uses its own capital to trade financial instruments, such as stocks, bonds, derivatives, or other assets, with the aim of making a profit. This differs from other types of trading where firms might trade on behalf of clients or act as intermediaries without using their own funds to take on market risk.

In proprietary trading, the firm benefits directly from the profits made on trades and also assumes the risks associated with those trading activities. It allows firms to invest in diverse opportunities and capitalize on market inefficiencies, generally using advanced trading strategies, algorithms, and data analytics.

This practice is often seen in investment banks, hedge funds, and trading firms that have the resources to absorb the risks of trading with their own capital. It is distinct from market making, where firms provide liquidity to the market by buying and selling securities, potentially without taking on significant risk themselves. Additionally, flow trading refers to the trading of securities on behalf of clients or creating liquidity, while asset-backed trading involves trading securities backed by assets like loans, which does not involve the firm trading its own capital.