Flow trading
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] In foreign exchange markets, dealers use the aggregate order flow they observe from clients to price currencies and manage their own positions.[2]
Flow trading can be a significant source of profits for investment banks.[3][4] For example, in the first quarter of 2026 JPMorgan's fixed-income traders recorded their second-best quarterly haul on record, while Goldman Sachs reported record equities trading revenue, both reflecting elevated client activity.[5][6] 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.[4][7]
In 2011, the Volcker Rule aimed to limit flow trading businesses from taking proprietary bets.[8]
References
[edit]- ↑ 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.
- ↑ Information Flows in Foreign Exchange Markets (PDF) (Report). Bank for International Settlements. Retrieved 31 July 2026.
- ↑ Augar, Philip (2005). The Greed Merchants: How the Investment Banks Played the Free-Market Game. Portfolio. p. 111. ISBN 1-59184-087-2.
- 1 2 v.d. Wel, M. (2005). Riskfree Rate Dynamics: Information, Trading, and State Space Modeling. Rozenberg Publishers. p. 43. ISBN 9789051707694.
- ↑ "Goldman Sachs tops estimates on record equities trading". CNBC. 13 April 2026. Retrieved 31 July 2026.
- ↑ "JPMorgan Traders Blow Past Expectations With Record Haul". Advisor Perspectives. 14 April 2026. Retrieved 31 July 2026.
- ↑ Williams, Mark T. (2010). Uncontrolled Risk. Mcgraw-hill. p. 74. ISBN 978-0-07-163829-6.
- ↑ Harper, Christine (10 October 2011). "Volcker Rule May Cut Fixed-Income Revenue 25%, Hintz Says". Bloomberg.com.
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