Prop Trading Vs. Flow Trading – Which Is For You?

Big Investment banks involve in Flow trading because it is one of the main revenue resources for them. Flow trading involves trading of financial instruments like bonds and flow traders need to work with the client’s fund and must work in-line with the interest of the client. There are so many types of trading happening in the financial market. Some of the basic tradings like agency trading and proprietary trading are popular ones and the other forms of trading overlap with these. While flow trading involves the money of clients, prop trading is the type of trading where a firm uses its own money to trade on whatever they want within the risk limits.

What is Involved in Flow Trading?

As we discussed, flow trading involves the client’s fund. In Flow trading, there is some of the amount of agency trading (acts just as an agent and just execute the orders of the clients) and some amount of proprietary trading involved.

Flow trading is a generic name given by investment banks to all the activities done to manage the funds of clients. It is a term that has market making, hedging, risk review and market pricing under one single umbrella.

Normally, a flow trader does any of the followings

  • He divests his positions to his clients with making profits
  • He buys for his client and also for his prop books
  • He functions as a market maker

As a whole, a flow trader always tries to maximize the profit on a daily basis. Flow trading involves a lot of prop trading and as Volcker rule has proposed to ban the concept of prop trading, there is a doubt in the market as to whether flow trading will also be subjected to ban.

How is Flow Trading and Prop Trading Differentiated?

It is a very difficult and complex task to differentiate these 2 forms of trading. A flow trader can be a risk trader or an agency trader. The advantage of being a flow trader is the huge advantage they get commission by being an agency trader and in the role of a risk trade, they still make the spread.

But this is not the case for Prop trader. They have no access to the ‘flow’ and hence have no opportunity to make a commission. They also have to take the risk of paying the spread.

This is the major difference between the Flow traders and the prop traders.


Being a Prop trader or flow trader is out of one’s’ own choice. But usually, prop traders are hired only if they have some years of experience in flow trading. But this is not the case for flow traders as even inexperienced people can be trained to become flow traders. Of course, there is also automated software such as Millionaire Blueprint that can do both.

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