Is HFT’s Zero Sum Game Reaching Its Endpoint?

As far as growth and profitability are concerned, high frequency trading is on the decline according to the Financial Times. Industry insiders are expecting a wave of consolidation as firms realize they are reaching a threshold of sustainability and can no long afford the massive overhead needed to maintain trading in milliseconds. Combine that with ever-declining equity volumes, and you have a formula that has seen HFT profits decline for the past five years.

“It’s been a tough market. High-frequency trading companies are struggling [to cope with] a lack of volatility and trading volume, competition and a cost structure that continues to go up,” says Larry Tabb, founder of the consultancy Tabb Group.

While the industry experiences a marked decline in revenues from U.S. equity trading, the shenanigans will continue as firms move into other asset classes and foreign markets. In the meantime, high frequency traders are likely to consolidate, however Tabb doesn’t expect the same consolidation among trading venues. While there are currently 13 exchanges and about 40 dark pools, he says closing those will negatively effect liquidity.

“What we’ve learned is that when you consolidate markets, you hurt liquidity. I’m not sure we’re going to see a whole lot of consolidation of trading venues and liquidity pools. You may just see fewer people on them.”

Curiously, Tabb’s comments come in the wake of a merger announcement between BATS and Direct Edge. Eric Hunsader, of market data specialist Nanex, has been vocal in his belief that consolidating exchanges will actually improve liquidity.

 

The charts below from Zerohedge and Dealbook show the decline in GETCO’s revenue and profit since 2008.

Is HFTs Zero Sum Game Reaching Its Endpoint 600x357 Is HFTs Zero Sum Game Reaching Its Endpoint?

Is HFTs Zero Sum Game Reaching Its Endpoint 2 600x385 Is HFTs Zero Sum Game Reaching Its Endpoint?

Is HFTs Zero Sum Game Reaching Its Endpoint 3 600x258 Is HFTs Zero Sum Game Reaching Its Endpoint?

Recommended reading:

Here’s What Jim Chanos Really Thinks About China

Floating Path explores economic and cultural phenomena, and hopes to educate, inspire and provoke. Discover their wide range of daily content here.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!