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. In foreign exchange markets, dealers use the aggregate order flow they observe from clients to price currencies and manage their own positions.

Flow trading can be a significant source of profits for investment banks. 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. 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.

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

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. ↑ Information Flows in Foreign Exchange Markets (PDF) (Report). Bank for International Settlements. Retrieved 31 July 2026.
  3. ↑ Augar, Philip (2005). The Greed Merchants: How the Investment Banks Played the Free-Market Game. Portfolio. p. 111. ISBN 1-59184-087-2.
  4. 1 2 v.d. Wel, M. (2005). Riskfree Rate Dynamics: Information, Trading, and State Space Modeling. Rozenberg Publishers. p. 43. ISBN 9789051707694.
  5. ↑ "Goldman Sachs tops estimates on record equities trading". CNBC. 13 April 2026. Retrieved 31 July 2026.
  6. ↑ "JPMorgan Traders Blow Past Expectations With Record Haul". Advisor Perspectives. 14 April 2026. Retrieved 31 July 2026.
  7. ↑ Williams, Mark T. (2010). Uncontrolled Risk. Mcgraw-hill. p. 74. ISBN 978-0-07-163829-6.
  8. ↑ Harper, Christine (10 October 2011). "Volcker Rule May Cut Fixed-Income Revenue 25%, Hintz Says". Bloomberg.com.