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Questions and Answers
What is the primary goal of proprietary trading (prop trading) firms?
What is the primary goal of proprietary trading (prop trading) firms?
- To generate profits using their own capital through various trading strategies (correct)
- To execute trades on behalf of clients and manage their investment accounts
- To manage client portfolios and offer personalised investment advice
- To provide financial advisory services and assist clients with financial planning
How do prop trading firms contribute to market liquidity?
How do prop trading firms contribute to market liquidity?
- By actively buying and selling securities, ensuring a counterparty is available for trades (correct)
- By holding onto securities long-term and not participating in daily trading activities
- By only trading during market openings and avoiding other times of the trading day
- By avoiding volatile markets and focusing only on stable, low-risk environments
What role do prop trading firms play in the price discovery process?
What role do prop trading firms play in the price discovery process?
- Their trades reflect assessments of fair value, incorporating information into market prices (correct)
- They set fixed prices for securities and determine market rates unilaterally
- They ignore market information and do not participate in price-setting activities
- They only trade in undervalued securities and avoid other market opportunities
How do prop trading firms manage and hedge risk?
How do prop trading firms manage and hedge risk?
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Why are prop trading firms significant for technological innovation in trading?
Why are prop trading firms significant for technological innovation in trading?
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What is one benefit of prop trading firms' capital efficiency?
What is one benefit of prop trading firms' capital efficiency?
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What attracts top talent to prop trading firms?
What attracts top talent to prop trading firms?
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What regulatory challenge do prop trading firms face in the United States?
What regulatory challenge do prop trading firms face in the United States?
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How do technological advancements by prop trading firms benefit the broader financial industry?
How do technological advancements by prop trading firms benefit the broader financial industry?
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What is a key challenge for prop trading firms in maintaining their competitive edge?
What is a key challenge for prop trading firms in maintaining their competitive edge?
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