Flow trading

{{Short description|Type of investment trading}}

{{Use dmy dates|date=March 2025}}

File:Deutsche-boerse-parkett-ffm008.jpg

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.{{cite book | title=Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange | first=Peter | last=Rosenstreich | date=2005 | isbn=0-13-148690-X | page=85}}

Flow trading can be a significant source of profits for investment banks.{{cite book | title=The Greed Merchants: How the Investment Banks Played the Free-Market Game | first=Philip | last=Augar | date=2005 | isbn=1-59184-087-2 | page=111}}{{cite book | title=Riskfree Rate Dynamics: Information, Trading, and State Space Modeling | first=M. | last=v.d. Wel | date=2005 | isbn=9789051707694 | page=43}} Engaging in flow trading can also boost a firm's own proprietary trading 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.{{cite book | title=Uncontrolled Risk | first=Mark T. | last=Williams | date=2010 | isbn=978-0-07-163829-6 | page=74}}

In 2011, the Volcker Rule aimed to limit flow trading businesses from taking proprietary bets.{{cite news | url=https://www.bloomberg.com/news/2011-10-10/volcker-rule-might-ban-fixed-income-flow-trading-hintz-says.html | newspaper=Bloomberg.com | date=10 October 2011 | title=Volcker Rule May Cut Fixed-Income Revenue 25%, Hintz Says | last=Harper | first=Christine}}