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] [5]
In 2011, the Volcker Rule aimed to limit flow trading businesses from taking proprietary bets. [6]
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