Ominous signs for high-frequency trading
Just a few years ago, when high-frequency trading was in full bloom, there was a palpable sense that this form of trading was poised for ever-rising growth.
Most assumed it would continue to account for a greater share of volume with each passing year. But a funny thing happened on the way: These firms lost their direction. They recent shuttering of Eladian Partners has sparked lots of discussion. The firm apparently sought to expand into other asset classes, but the woes of equity trading operations proved to be too much.
One would have to think that other high-frequency trading firms are facing some huge decisions as well, as the unfavorable environment persists. Rosenblatt Securities has predicted that high-frequency firms would earn about $1.25 billion this year, down 35 percent from last year and 64 percent beneath a peak of $4.9 billion in 2009. The main issue here is a lack of retail trading volume, the life blood of the high frequency firms. Until that returns, it's hard to see the industry thriving again.
That said, the volume sluggishness has affected a broad swath of traders. I've noted over on FierceFinance that hedge funds and other buyside firms have reacted significantly to the poor climate. A report from Greenwich Associates, for example, has found that 44 percent of hedge funds said their 2012 trading desk budgets had declined, with approximately 40 percent reporting flat budgets and 17 percent reporting increases.
Some powerful ripples are starting to crop up. The stock trading and research division of ThinkEquity has shut down, for example, and thers are likely to follow.
- here's the Advanced Trading article