PrefBlog

Profits from High Frequency Trading are getting harder to come by:

Revenues at HFT firms from U.S. equities trading were an estimated $1.1 billion last year, down from $7.2 billion in 2009, according to research firm Tabb Group.
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Such strategies are more successful when markets are volatile, because big price swings offer traders more opportunities to capture profits. But volatility has come down drastically since the years just after the global financial crisis. The CBOE Volatility Index, or VIX, a measure of U.S. stock market volatility, has averaged just 11.6 so far this year, down from 24.2 in 2011, according to the WSJ Market Data Group.
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It is an expensive arms race. When many high-speed traders got their start in the 2000s, the leading technology for transmitting data was fiber-optic cable.

But starting in 2010, the speediest firms began to use microwave networks, shaving milliseconds off the time it takes to transmit information on routes such as the Chicago-New York corridor. Upgrading to microwave networks—and later millimeter-wave and laser technology—added to the costs, traders say. All this hurt HFT firms’ bottom lines just as slumping volatility was eroding their top-line revenues.
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HFT firms also grumble about mounting costs for the market data they buy from operators like the New York Stock Exchange and Nasdaq Inc., as well as for co-location, the practice of putting a computer server directly in the exchange’s data center to cut down the time it takes to execute trades.

PerpetualDiscounts now yield 5.21%, equivalent to 6.77% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread” is now about 270bp, a significant widening from the 260bp reported March 15.

This entry was posted on Wednesday, March 22nd, 2017 at 10:31 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.