Difference between S&T and Prop Trading
Don't really understand the difference between these two. Aren't you making markets in both trading? But you are trading for clients in S&T and yourself in prop.
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You've answered your own question. S&T is almost always flow trading and prop you do it on behalf of the firm you're working for (with their funds and not clients).
It all blends together, prop and market making aren’t really separate things.
Imagine you’re a credit trader at a bank. A client comes to you and asks for a price of 100mm of Mexico sovereigns. You reply in the chat that the price the client can buy at is 98 and he can sell at 97. Suppose the client sells. That means the trader at the bank is long 100mm if this bond. What does he now do? Well he can just sell it and probably take an immediate loss, he can hold the position and stay long and wait for the market to move. He can also short a us treasury or Brazilian bond against this and turn it into a spread trade, or maybe he sells a longer dated Mexican bond to turn it into a curve trade.
Lots of ways to manage the risk and all involve taking views. You can’t jsut mindlessly execute for clients unless you want to lose money
The problem with Volcker summarized in one sentence.
Prop trading is fine line between pure prop and market making. All prop means is in house money... Not clients. Hence prop = proprietary. Firms like jane street are market makers but they're prop because it's their money and firms like FNY are pure prop. When you're market making, regardless you're taking risk, yeah you may have an edge but you might be in the wrong side of the trade real quick. Market making isn't guaranteed money but the edge is in your favor initially.
The problem is... it’s hard to separate prop and market making... Volcker rule is the dumbest fucking ever
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