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Abstract
This article depicts a complete picture of the profitability of proprietary trading by professional floor traders in four futures contract markets during 1995. Evidence shows a heterogeneous group in that more than one-third of them actually lost money in their proprietary trading. On average, only about 15 of them made annual profits of more than $100,000. Regression results show that proprietary volume increases as the market gets more volatile. However, it is only during the intermediate volatile market days that proprietary traders on the floor take the greatest advantage of these noise traders. During the most volatile market days, the informational advantage or trading skill by proprietary traders does not transform into greater trading profits. Furthermore, the support is mixed for the hypothesis that dual trading has a positive effect on dual traders' profitability.
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