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]
^Rosenstreich, Peter (2005). Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange. p. 85. ISBN0-13-148690-X.
^Augar, Philip (2005). The Greed Merchants: How the Investment Banks Played the Free-Market Game. p. 111. ISBN1-59184-087-2.
^ abv.d. Wel, M. (2005). Riskfree Rate Dynamics: Information, Trading, and State Space Modeling. p. 43. ISBN9789051707694.