Final answer:
Proprietary trading is when a broker-dealer trades securities for its own account, aiming to make a profit for the firm.
Step-by-step explanation:
When a broker-dealer (BD) engages in trading securities for its own account, this activity is referred to as proprietary trading. Proprietary trading occurs when the firm's traders actively buy and sell securities, commodities, or other financial instruments with the firm's own money as opposed to customers' money, in order to make a profit for the firm.
This type of trading can provide the firm with several benefits, including potential profits from market activities and the ability to hedge other positions, although it also carries risks such as potential conflicts of interest and significant financial losses if the trades do not perform as expected.