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. 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. ↑ 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. ↑ Bloomberg News Oct 10, 2011


This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.