Flow trading explained

In finance, flow trading occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with funds from a client, rather than its own funds.^[1]

Flow trading can be a significant source of profits for investment banks.^{[2] [3]} Engaging in flow trading can also boost a firm's own proprietary trading^[4] profits via access to information on client activities. Additionally, the firm can often facilitate client trades by serving as the counterparty, thus profiting from the bid–offer spread.^{[3] [5] [6]}

In 2011, the Volcker Rule aimed to limit flow trading businesses from taking proprietary bets.^[7]

Notes and References

1. Book: Rosenstreich, Peter . Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange . 2005 . 0-13-148690-X . 85.
2. Book: Augar, Philip . The Greed Merchants: How the Investment Banks Played the Free-Market Game . 2005 . 1-59184-087-2 . 111.
3. Book: v.d. Wel, M. . Riskfree Rate Dynamics: Information, Trading, and State Space Modeling . 2005 . 9789051707694 . 43.
4. Web site: Bunka . D (2024) . Prop Forex & Crypto Veterans - DaikokuTrade . 2024-06-08 . en.
5. Book: Williams, Mark T. . Uncontrolled Risk . 2010 . 978-0-07-163829-6 . 74.
6. Web site: William . James (2012) . CFD Broker: Profitable Flow Trading . 2024-03-07 . en.
7. News: Volcker Rule May Cut Fixed-Income Revenue 25%, Hintz Says . Bloomberg.com . 10 October 2011 . Harper . Christine.