High-Frequency Trading Less Profitable, Less Prevalent
March 1, 2013
Average daily volume on the nation’s equities markets is down from 9.75 billion shares in 2009 to 6.45 billion shares in 2012.
And with it, so has the volume of trading and profits made by high-frequency trading firms plunged, according to Rosenblatt Securities, an agency broker that tracks off-exchange trading.
High-frequency trading accounted for 66 percent of equities trading in 2009, according to statistics presented by Rosenblatt managing director Justin Schack at the TradeTech 2013 conference at Pier 60 in Manhattan Thursday. Now, that is down to 50 percent.
Average daily volume for such high-speed market makers and automated trading firms has dropped from 3.25 billion shares a day to 1.6 billion in that period.
And profits have dropped from $0.001 to 0.0015 a share to $0.0005 to $0.00075, Rosenblatt estimated.
In effect, HFT has become both less profitable and less prevalent, Schack said.
Such trading requires great volume, in order for the firms to be profitable at such small amounts per share.
With the CBOE Volatility Index having fallen from near 80 at the height of the credit crisis in October 2008 to nearly 12 at the outset of this year, conditions have gotten harsher for high-frequency trading firms, he said.
Such firms’ profits from equities trading have fallen 75%, from 2009. In 2012, the firms’ total profit was somewhere between $810 million and $1.2 billion, according to Rosenblatt’s statistics.
The largest electronic market maker, GETCO, saw its net income drop 82 percent in the first nine months of 2012, compared to 2011, to $24.6 million.
The firm, which is in the process of acquiring another market maker, Knight Capital Group, now sees 32 percent of its trading conducted outside equities, Schack said.