What does the term 'flow trading' refer to?

The term 'flow trading' specifically refers to trading commodities using client funds. In this context, flow trading involves executing transactions on behalf of clients, where the trading firm acts as an intermediary. This process typically includes assessing client needs, managing their orders, and executing trades to fulfill those needs while aiming to generate revenue through commissions or spreads.

Flow trading is fundamental in the commodities market, as it allows for liquidity and efficient price discovery, facilitating various client strategies without the firm taking speculative positions itself. This model contrasts with proprietary trading, where a firm risks its own capital, or with buy-and-hold strategies focused on long-term price appreciation, which are not inherently linked to client-driven transactions. Additionally, while speculating on future prices is a common aspect of trading, it does not encapsulate the essence of flow trading, as that primarily centers around executing trades based on client demand and not on proprietary speculative bets.