Flow trading

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A stock trading desk Deutsche-boerse-parkett-ffm008.jpg
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. Additionally, 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. ↑ Rosenstreich, Peter (2005). Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange. Financial Times Prentice Hall Books. p. 85. ISBN   0-13-148690-X.
  2. ↑ Augar, Philip (2005). The Greed Merchants: How the Investment Banks Played the Free-Market Game. Portfolio. p. 111. ISBN   1-59184-087-2.
  3. 1 2 v.d. Wel, M. (2005). Riskfree Rate Dynamics: Information, Trading, and State Space Modeling. Rozenberg Publishers. p. 43. ISBN   9789051707694.
  4. ↑ Williams, Mark T. (2010). Uncontrolled Risk. Mcgraw-hill. p. 74. ISBN   978-0-07-163829-6.
  5. ↑ Harper, Christine (10 October 2011). "Volcker Rule May Cut Fixed-Income Revenue 25%, Hintz Says". Bloomberg.com.
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