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Are there two definitions to Flow Trading? From reading online, I've gathered two, but I'm not sure if I am mistaken, so a little bit of clarification would be very much appreciated.

(1) Flow Trading - trading that uses clients' money (I would assume something like a hedge fund)

(2) Flow Trading - same as market making (buys/sells based on incoming flow of orders from clients, but uses its own money)

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Flow trading would be 'taking positions based on where they think the market is heading' according to this source. In other words, speculation on asset prices done by banks. This has been a concern of regulators in the US (Volcker rule) and elsewhere.

On the other hand, market making desks profit from spreads embedded in transactions in which a client is a counterparty.

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    $\begingroup$ The "flow" in Flow Trading is the flow of buy and sell orders seen by the Market Maker. Using this information (especially large or axial orders) to divine 'where the market is heading' and taking a speculative position accordingly is Flow Trading. As you mention MM is profitable on its own without doing this. Not all MMs are FTs. $\endgroup$
    – nbbo2
    Dec 5, 2022 at 18:54
  • $\begingroup$ It is a simple question of (widely used) terminology rather a Quant Finance question. You can google an answer or read about it in a financial newspaper, etc. $\endgroup$
    – nbbo2
    Dec 6, 2022 at 16:31

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