Assessing HFT Industry Profitability from Public Company Data
Summary
The document asks whether estimates of high-frequency trading profitability are reliable and presents several viewpoints on how to assess the industry. One answer recommends examining public financial statements from listed firms such as Virtu Financial and Flow Traders, which can provide direct evidence of company revenues and earnings. Another cautions that firms often run multiple strategies, making it difficult to isolate results attributable specifically to HFT.
The document also cites an estimate of declining equity trading revenues between 2009 and 2016, with a further decline projected for the following year. These figures are attributed to a consultancy through secondary reporting, while the public-company approach offers firm-level information rather than a clean industry-wide total. Neither source fully resolves the question: company disclosures may combine strategies and businesses, and estimates depend on how HFT is defined. The material is therefore useful as a guide to evidence and measurement limits, not as a definitive estimate of current HFT profits.
Key ideas
- Public financial statements can provide observable evidence about the performance of listed trading firms.
- Reported firm results may combine HFT with other strategies and business activities.
- Industry revenue estimates depend on which activities are classified as HFT.
- The cited equity trading revenue figures are estimates reported through secondary sources, not a complete accounting of all HFT profits.
Tags
Full text
# How much profit do HFT firms generate? # How much profit do HFT firms generate? I read on http://www.thetradenews.com/Technology/HFT--Not-so-flashy-anymore/?p=2 (mirror): > Profits from HFT are estimated to have peaked for the industry at close to $5 billion in 2009. It is thought that now [2017] it is probably less than a billion dollars, spread over many more players,” he says. I wonder whether this estimation is a consensus amongst industry experts, and if not what other serious estimations are. ## Answer by pyCthon (score 3) https://quant.stackexchange.com/a/36786 Instead of looking at estimates, you can look at actual data. There's two well known and publicly traded HFT firms Virtu Financial and Flow Traders. Their earnings and financials are public. https://www.flowtraders.com/investors#no-back http://ir.virtu.com/investor-relations/default.aspx ## Answer by Bikenfly (score 2) https://quant.stackexchange.com/a/36780 The best HFTs don't just "HFT" and concurrently run multiple strategies on the same underlying instruments. Therefore, in general these estimates most likely are lowballing the profitability. As a former COO of an HFT-brokerage-provider, I saw the underlying numbers and labeling what most call "HFT" is erroneous - yeah, they go flat at the end of the day, but many strategies have holding periods in the dozens of seconds to minutes. Anyone that gives you their estimates if not on the prop side is full of it. Best you can do - take a look at the public company Virtu, they are a large player. And as a public company you can get some insights into their profitability, if not their underlying strategies. ## Answer by Franck Dernoncourt (score 1) https://quant.stackexchange.com/a/35944 Another estimate from http://nordic.businessinsider.com/the-fastest-traders-on-wall-street-are-in-trouble-2017-8?r=US&IR=T: > Total revenues brought in by HFTs from equity trading have dropped over 85% from 7.2 billion USD in 2009 to 1.1 billion USD in 2016, according to data from the TABB Group. The consultancy expects revenues to slide to 900 million USD this year.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.