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The fastest traders on Wall Street are in trouble

  • the peep probity leagueWarner

    High-frequency traders, done famous in Michael Lewis’
    “Flash Boys,” are in trouble. 

  • Low sensitivity and rising operational costs are making
    it harder for HFTs to shake out the revenues they once
  • HFTs are changeable their concentration to alternative

Wall Street’s fastest traders are going to need a lot some-more than
speed if they’re going to survive. 

High-frequency traders, the Wall Streeters done famous by
Michael Lewis’ Flash Boys, use their record to get to trades
brazen of the competition. For years, this strategy raked in
billions. But low sensitivity and rising operational costs have
squeezed HFTs,
precipitating a call of converging and closures.

“HFT firms have been confronting unbending headwinds due to low
volatility,” Richard Repetto, an researcher at Sandler O’Neill +
Partners told Business Insider in an email. “Both pragmatic and
intraday sensitivity have been at lows making it formidable for
HFTs to earn suggestive spreads.”

Total revenues brought in by HFTs from equity trade have
forsaken over 85% from $7.2 billion in 2009 to $1.1 billion in
2016, according to information from the TABB Group. The consultancy
expects revenues to slip to $900 million this year.

But many HFTs are looking brazen and revamping their business
models to grow despite this environment. 

“We sojourn assured that the core results are a effect of
the terrible sourroundings for a market-maker,” Douglas
Cifu, the CEO of Virtu Financial, a publicly traded HFT, said
during an gain call on Aug 10.
“While we are not
happy with the results, we are proactively handling the business
to grow and to continue to earn an excusable return in this

Pesky volatility

vix v21Andy Kiersz. Data from

High-frequency traders have seen revenues decrease for years, but
the historically low sensitivity of the past year has led to a
breaking point.

“When markets don’t pierce much, direct for the job
high-frequency traders do is low,” Dave Weisberger, the conduct of
equities at ViableMkts, a marketplace structure record company,
said. “It’s elementary supply and demand.”

As liquidity providers, HFTs are scanning the markets for
opportunities in which buyers and sellers aren’t matched

But when sensitivity is too low, like it has been
for the past 4 months, those opportunities are tough to come by
since there are fewer cost swings.

Similarly, high sensitivity is unattractive as

In a sense, HFT is kind of like surfing.
A surfer wants to hit the waves during high-tide — not during
low-tide or a monsoon. 

Here’s Michael Antonelli, an institutional equity sales trader
and handling executive at Robert W. Baird Co, a
Milwaukee-based organisation (emphasis is the own):

It’s an surprising year since there’s hardly been any major
marketplace moving events. Just headlines. No major macro hiccups. No
Ebola scare. Generally, you are seeing a global upswing in macro
data. If you go opposite the world, you have a lot of batch markets
doing really well. They are really strong. You spin on
the Bloomberg and almost all is green.

Volatility is cyclical and so this ease sourroundings will not
insist indefinitely. But even if sensitivity earnings to
normal levels, the attention won’t see the revenues it did
three or 4 years ago, according to Larry Tabb,
founder and chairman of TABB Group.

“We could substantially get to $1 billion or $1.5 billion,” Tabb told
Business Insider.”But not $2 billion or $3 billion.”

Volatility is just partial of the equation

Low sensitivity is just one issue confronting HFTs, according to Don
Ross, CEO of PDQ Enterprises, the primogenitor company of CODA Markets
equity trade platform.  

“Low sensitivity is compounding an issue high-frequency traders
have been confronting for years: rising sell costs,” Ross
told Business Insider. 

Servers for information storage are seen at Advania's Thor Data Center in Hafnarfjordur, Iceland Aug 7, 2015.   REUTERS/Sigtryggur Ari/File Photo
for information storage are seen at Advania’s Thor Data Center in
Hafnarfjordur, Iceland


HFTs compensate exchanges such as Nasdaq and the NYSE to store their
servers in the same building as the matching
engines. But the cost of this service, referred to as
colocation, has turn some-more costly as exchanges continue to
hurl out some-more levels of service, according to Weisberger.

“It started with one gig tie to the relating engine,
then they offering 10 gig connection, then 40 gig connection,” he

“[High-frequency traders] don’t indispensably wish more,”
Weisberger said. “They just don’t wish to be one-upped by the

This spike in costs has hurt a lot of folks in the industry,
according to
stating by Business Insider’s Matt Turner. “[High
costs are] the new normal,” Tabb said. 

What’s next?

HFTs can’t rest on speed any longer. In sequence to adjust to the new
environment, they’ll have to change the concentration of their technology,
according to Gaurav Chakravorty, the CEO of qplum, from speed to
making predictions. Chakravorty formerly worked at
Tower Research, one of the premier HFTs, and his
recently expelled a report on creation in trading. He
said high-frequency trade firms are “picking up pennies in
front of a bulldozer.”

HFTs should revoke the singular disposed concentration on latency,”
Chakravorty said.”And they should demeanour for distinction opportunities
using low training technology.”

Deep training tech allows computers to learn things but being
automatic to do so. According to Chakravorty, HFTs can use deep
training tech to brand signals, such as when someone cancels
an order, that can lead to money-making
opportunities. Chakravorty pronounced HFTs are good at developing
record so making the change wouldn’t be difficult. But it will
cost money, according to Goldman Sachs.

“Further, technological advances in the space will require
continued investments to stay competitive,” the bank said. 

Mark Smith, the CEO of Symbiont, a blockchain record company,
told Business Insider he knows of HFTs that are looking to use
their record to daub into distinction opportunities in the private

“There are two HFTs I’ve talked to who are looking for
undervalued resources in the private market,” Smith said. “With
fewer companies going open there are some-more opportunities

HFTs are also looking to enhance their technological
offerings. Virtu Financial, for instance, particularly partnered with
JPMorgan to yield the bank with record to enhance
its electronic trade operations. Sun Trading, a
Chicago-based high-frequency trade firm, provides another
example. It announced a record partnership on Aug 20
with Instinet, a multiplication of Japanese bank Nomura, to help
it prepare for changes to European

Joe Ciolli contributed reporting.

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