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Looking at quant roles I keep seeing 'Flow Interest Rates' or 'Interest Rate Flow' - what does this refer to?

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It refers to the side of the business that deals with customer flows, as opposed to proprietary trading, which would be listed as "interest rate prop". –  Tal Fishman Jun 11 '12 at 21:40
Cheers. If you add that as an answer, I'll be able to accept it... –  Phil H Jun 11 '12 at 21:57
Incidentally, any idea what it would involve? –  Phil H Jun 11 '12 at 21:57
Well, I understand how you might have come to this question looking at quant roles, but really the distinction exists for non-quant, too, so I'm not sure this qualifies as a quant finanace question. A flow role would probably involve relatively more pricing and modeling for the purpose of hedging and less trying to divine the direction in which markets are headed. –  Tal Fishman Jun 11 '12 at 22:00
@Tal, I disagree with your comments regarding what rates flow trading is about and how it differs from non-flow products. Please see my suggested answer below. I think my proposed definition is pretty industry standard. Please feel free to point out if you disagree though... –  Matt Wolf Jun 12 '12 at 5:52
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2 Answers

up vote 2 down vote accepted

The above posts are incorrect in that it has nothing to do with a distinction between prop trading or client facing trading.

Flow trading simply means that the underlying products are "commodity products" in the sense that they are easy to value, high turnover products. Thus rates flow trading involves the trading of cash sovereign government bonds, corporate bonds, overnight index swaps, interest rate swaps, all the way up to caps, floors, and swaptions. Those are rate flow products.

On the other side of the spectrum are "hard-to-value structures" that are not considered flow products, such as exotic derivatives, MBS, ABS, CDOs, CMOs,...

Please note that all products whether flow or not are products traded in client facing roles, thus my first comment that I disagree with Tal's earlier comment.

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Cheers, that is very clear. So, I do flow interest rate derivs, good to know! So presumably more likely to be at larger IDBs and broker/dealers than retail. –  Phil H Jun 12 '12 at 12:07
Perhaps rates desks at I-banks have evolved different terms than other areas of I-banks and from the buy side. I used to work on an FX prop desk, and there they distinguished FX flow trading from FX prop trading primarily in whether they dealt with client flows. Perhaps the term has evolved somewhat in rates, but I'm certain the origin of the term is "client flow." BTW, the distinction you mention sounds to me like structured vs. liquid products, or at least that is how we refer to it at my firm. –  Tal Fishman Jun 12 '12 at 15:14
Tal, regarding sell-side Ibanks, I am pretty certain flow trading refers to the distinction between liquid vs illiquid products, also in fx world. Some desks consider barrier options still as flow products, while structured fx notes are clearly not. Thats at least how US and European investment banks hold it, at which I have traded at several of them. –  Matt Wolf Jun 13 '12 at 4:12
It probably had a different meaning at that time, and with the surge in exotics, they had to differentiate both streams. –  BlueTrin Nov 1 '13 at 12:19
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Floating interest rate is the interest rate that private markets determine, based on demand and supply data. If the demand of a currency goes down, it leads to expensive imports, which leads an extra room for local jobs and services and so on. That is opposed to a fixed interest rate that is set and maintained by a government’s central bank.

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Please read the question before posting non-sequitur answers. –  Tal Fishman Jun 13 '12 at 17:21
Seriously, your answer is just embarrassing. Don't post this nonsense on here. –  chrisaycock Jun 14 '12 at 0:23
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