In finance

Finance

"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...

, 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.

Flow trading can be a significant source of profits for investment banks. Engaging in flow trading can also boost a firm's own proprietary trading

Proprietary trading

Proprietary trading occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with the firm's own money as opposed to its customers' money, so as to make a profit for itself...

 profits via access to information on client activities, as well as the fact that the firm can be the buyer and the seller of a security almost at the same time, thus profiting from the bid ask spread.

In 2011 the Volcker Rule

Volcker Rule

The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that...

aimed to ban flow trading.