UPS AND DOWNS

High-frequency traders are feasting on the market mayhem

Obsession
Future of Finance
Obsession
Future of Finance

This week has been tough on investors—global markets have shuddered, erasing trillions of market value in stocks alone. But the revival in sharp price swings (volatility) is good news for the computerized high-frequency traders (HFTs) that help facilitate buying and selling by posting bids and offers.

Shares in Virtu Financial shot up this week, as did those in Amsterdam-based Flow Traders, which specializes in exchange-traded funds. Virtu rose 30% yesterday after its fourth-quarter earnings beat estimates. “Clearly, it’s a very, very favorable environment for a market maker,” Virtu CEO Doug Cifu said on a conference call. The New York-based firm is one of the world’s biggest HFTs, making markets in more than 19,000 securities on some 235 exchanges.

Persistently calm financial markets over the past year or so weren’t great for HFTs, especially as the cost of maintaining a technological edge continues to rise. That pressure has resulted in some companies exiting the business or teaming up with rivals through acquisitions (Virtu bought KCG for $1.4 billion last year). The sudden spike in volatility may make ordinary investors queasy, but the market makers who thrive on it are celebrating its return.

“When you see the Dow or S&P or the Nikkei or the DAX whipping back and forth, that’s obviously a situation where a market maker has to step up and perform its service,” Cifu said. “It’s been a really good test for our combined firm. We performed very well.”

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