Eigenhandel

Eigenhandel, or proprietary trading, is the practice by which a financial institution, such as a bank or investment firm, trades financial instruments using its own capital and balance sheet with the aim of earning profits from market movements, rather than executing orders on behalf of clients. It often operates through dedicated trading desks, separate from client-facing activities.

Activities include trading equities, fixed income, derivatives, commodities, and complex structured products. Traders rely on market research, models, and risk management to exploit short-term mispricings, arbitrage opportunities, or directional bets. Profits come from both price appreciation and funding and spread strategies, while losses occur when positions move against expectations or liquidity dries up.

Regulation tightened after the global financial crisis. In the United States, the Volcker Rule limits proprietary trading by depository institutions, aiming to reduce risk and conflicts of interest. In the European Union, MiFID II and related Basel III standards address risk controls, capital requirements, and the separation of market-making and client- or purely proprietary activities. Many banks also implement internal firewalls, risk audits, and capital allocation frameworks to limit the size and risk of prop trading.

Critics argue that Eigenhandel can create conflicts of interest, exacerbate systemic risk, and encourage excessive risk-taking for short-term gains. Proponents contend that proprietary desks contribute liquidity, price discovery, and capital efficiency when properly regulated and managed. The term is often discussed in the context of large banks and the governance of risk.