Only a good diagnosis can lead to the right treatment: How many investment bankers engaged in proprietary trading actually suffer from a special form of gambling addiction?

Proprietary trading is a term used in investment banking to describe when the firm’s traders actively trade stocks, bonds, options, commodities, derivatives or other financial instruments with its own money as opposed to its customers’ money, so as to make a profit for itself. There are a number of ways in which proprietary trading can create conflicts of interest between a trader’s interests and those of its customers. Some suspect that traders engage in “front running”, buying shares in companies the traders’ customers are buying so as to profit from the price increase resulting from the customers’ purchases and thereby harming the customers’ interests.

Proprietary trading can also backfire on a company. Proprietary traders try to make money using a lot of leverage. It’s kind of like an internal hedge fund – traders can be doing anything from trading currency to fixed income to equities. A credit default swap (CDS) is a credit derivative contract between two counterparties. Critics of the huge credit default swap market have claimed that it has been allowed to become too large without proper regulation and that, because all contracts are privately negotiated, the market has no transparency.

The global financial crisis of 2008–2009 emerged in September 2008 with the failure, merger, or conservatorship of several large United States-based financial firms and spread with the insolvency of additional companies, governments in Europe, recession, and declining stock market prices around the globe.

Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity. The subprime mortgage crisis reached a critical stage during the first week of September 2008, characterized by severely contracted liquidity in the global credit markets and insolvency threats to investment banks and other institutions.