For all the angst over high-frequency trading (HFT news) and the concern for future regulations, one interesting fact has been overlooked: These firms are struggling right now. This is the conclusion of a recent Financial Times article that looked at the results of Dutch firm Optiver, a big player in Europe, which must file a financial report annually to the Dutch chamber of commerce. 

Its 2009 report reveals the firm, which employs 600 people globally, saw earnings plunge 98 percent. That could reflect the fortune of a single firm. But what about the recent study by a graduate student at Northwestern University's Kellogg School of Management, which notes that such traders have been portrayed as "making tens of billions of dollars from other investors," even though the 26 groups studied generated a combined $3 billion in profits in 2009, based on $30 trillion traded annually?  

It's hard to generalize of course, but it's fair to say that market conditions right now are not ideal for high-frequency traders, who thrive on high volume and extreme volatility. Right now both are relatively subdued. You could argue the "hotness" of the trading type has drawn in many competitors, and that has narrowed profit margins. That could be a sign that the problems imposed by high-frequency trading may be abating of its own weight. 

But in reality, these sorts of profit pauses will only fuel the practices for which the industry is known. As the competition mounts, high-frequency traders need a sharper edge in the market, which basically means more speed and intelligence these days. The arms race will only continue, even as the weaker players are weeded out. When market conditions ripen, these firms will be well positioned to ply their trade even more profitability. Depending on how you view the value of high-frequency trading, this is good or bad news. 

Certainly, it keeps the spotlight on the SEC, CFTC and the Fed, who must make sure they create the best possible playing field for all investors. - Jim