Its not easy being a high frequency trader these
Market volume is down and market volatility has largely
vanished, making it ever harder for the high-speed trading
crowd to employ their
blindingly quick and often repetitive buy and sell
strategies on U.S. and European markets and reap a
And while the push for speed can be prohibitively
expensive with some signing up for the fastest
fiber optic, microwave or chip technology others see
the beginning of the end of the high-speed advantage, as a
growing universe of traders uniformly achieve the fastest
Combine that with
heightened scrutiny by regulators in the U.S. and Europe
and the possibility of new trading restrictions, and HFT
traders have a lot of worries on their minds these days.
So whats a competitive HFT trader to do?
For some, the answer has been to exit the market entirely.
Were in the middle of a shakeout, where a lot of
people have poured a lot of money into this [high frequency
trading] and are now realizing that its not the gold mine
they expected, says Charles Jones, a professor of finance
at the Columbia Business School and consultant to Citadel, a
Chicago-based hedge fund, institutional trading firm and
well-known practitioner of HFT strategies.
Jones says that he has seen a considerable number of small
HFT firms two guys and a Bloomberg
machine exit the scene or simply pare
back their HFT efforts.
Larry Tabb, CEO and founder of research firm, TABB Group, is
more specific: Profitability for high frequency traders
has been down fairly significantly for the last three or four
years. His firm reports that HFT profits in
U.S. equity markets dropped from $7.2 billion in 2009 to a
projected $1.8 billion in 2012, while over the last two years,
HFT as an overall percentage of U.S. equity volume has dropped
slightly from 56 percent in 2010 to a projected 53 percent in
In the U.S., the activity has also been stifled by the
pending Volcker Rule, which restricts commercial and investment
banks from proprietary trading that does not directly benefit
their customers. In November of 2011 Bank of America sold its
high frequency trading operations to Getco, a major HFT