While more of a nuisance than a show stopper for us, we noticed High Frequency Traders (HFT’) have been less prevalent recently than in the past. Yesterday at a lunch meeting with fellow professionals this topic was bantered a bit. Right on time a nice supporting view from traders magazine today.
HFT and the Flash Crash?
While we do not attribute all of the flash crash to HFT trading, there is a high likelihood that at least partial blame goes to these folks who all at once stepped aside allowing the markets to plunge several percentage points only to rise again. The good news from this experience are new circuit breakers have been installed to prevent this occurrence again, so possibly a good result.
HFT Profits Vanish
According to this Traders Magazine Article, Rosenblatt securities estimates
“…profits have dropped from $0.001 to 0.0015 a share to $0.0005 to $0.00075….”
“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.”
Such a dramatic drop in margins will certainly chase current players away and thwart new entrants.
Where does this leave us? No more HFT? Doubtful
In domestic and overseas equity markets, low volatility, mostly positive movement has stymied much fo the HFT trading in our opinion. Should volatility come back we would expect an increase in HFT activity, however, our bet, they are on to greener pastures…..Commodities or currencies anyone (both highly leveraged)
Again as a non day trading firm HFT were not our enemy, although there were times when we had to pull in our reins to keep from donating an extra few cents to their cause. We will keep our eyes peeled as true capitalists, it is highly likely they will show up in another area of the capital markets in the future.
Have a Great Day!
JK214-706-4300 www.jkfinancialinc.com 8222 Douglas Ave # 590 Dallas, TX 75225