Proprietary trading is most likely carried out by which type of market participant?

Proprietary trading refers to the practice where a financial firm trades financial instruments, such as stocks, bonds, or derivatives, using its own capital to generate profits for itself rather than for clients. Dealers, as market participants, are typically engaged in buying and selling securities on their own behalf. This capability allows them to take on the risk associated with these trades and potentially earn profits from market movements.

Dealers operate in the market by maintaining inventory positions and facilitating liquidity. By using their own funds, they can capitalize on market opportunities that arise from price discrepancies or trading strategies. Their role goes beyond just facilitating trades for clients; they actively engage in trading activities that aim to generate returns through proprietary positions.

While investment banks may also engage in proprietary trading, they typically represent a broader scope of services, including mergers and acquisitions, underwriting, and advisory roles, which do not necessarily focus exclusively on proprietary trading. Brokers act primarily as intermediaries, executing trades on behalf of clients, and settlement agents focus on the administrative aspects of the trading process. Thus, dealers are the participants most directly associated with the practice of using their own capital for trading initiatives.