When a financial institution such as an investment bank trades with its own money, deliberately taking risk on its own account, this is called proprietary trading.
Proprietary trading should not be confused with activities such as market making and arbitraging. These are trading activities and the institution does not deliberately take significant uncovered (unhedged) positions relative to the amount of trading.
Proprietary trading can be risky and some institutions have made large losses from it. However, it can also be very profitable.
Proprietary trading uses complex strategies similar to those used by hedge funds. Some investment banks have taken to proprietary trading with such enthusiasm that critics have described them as "hedge funds with a banking business".