Flow trading

A stock trading desk

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 profits via access to information on client activities, as well as the fact that the firm can often facilitate client trades by serving as the counterparty, thus profiting from the bid-offer spread.[3][4]

In 2011 the Volcker Rule aimed to limit flow trading businesses from taking proprietary bets.[5]

References

  1. ↑ Forex revolution: an insider's guide to the real world of foreign exchange by Peter Rosenstreich 2005 ISBN 0-13-148690-X page 85
  2. ↑ The greed merchants: how the investment banks played the free-market game by Philip Augar 2005 ISBN 1-59184-087-2 page 111
  3. 1 2 Riskfree Rate Dynamics: information, Trading, and State Space Modeling by M. v.d. Wel 2005 ISBN 9789051707694 page 43
  4. ↑ Uncontrolled risk by Mark T. Williams 2010 ISBN 0-07-163829-6 page 74
  5. ↑ Blomberg News Oct 10, 2011


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