High-frequency traders are winning big thanks to coronavirus disruption

For some firms the pandemic means opportunity.
For some firms the pandemic means opportunity.
Image: Reuters/Brendan McDermid
By
We may earn a commission from links on this page.

The coronavirus pandemic is disrupting the global economy and taking a major toll on financial companies, from insurers to banks and asset managers. High-frequency trading companies are among the very few to benefit from the pandemonium in financial markets.

Virtu Financial, a New York-based trading firm, has risen about 42% in the stock market this year, while Amsterdam’s Flow Traders, another market maker, has climbed 38%. Meanwhile BlackRock, the world’s biggest asset manager, hasn’t been immune to the fallout, and banks like JPMorgan have fallen 30% or more.

The threat to financial companies from the pandemic disruption is widespread. Banks are vulnerable to defaults as companies are forced to shut down to contain the breakout and as the number of unemployed people grows rapidly. Consumers are spending and traveling much less, interrupting revenue for payment companies like Visa. (Though auto insurers are doing well as drivers stay home.)

High-frequency traders, meanwhile, have suffered in recent years amid placid financial markets. But that all changed last month when stock and bond market volatility soared, and trading volumes boomed for assets from derivatives to foreign exchange.

One of the ways firms like Virtu make money is by quoting bids and offers on securities, and profiting on the spread between those prices. That spread has increased as uncertainty and volatility in the markets has grown. At the beginning of the year the median bid-ask spread for S&P 500 stocks was about 4 basis points, according to Goldman Sachs research, and it increased to more than 14 basis points by the end of March.

That’s been a big opportunity for Virtu, which trades more than 25,000 securities in 37 countries. The company expects to have made as much as $519 million in net trading income during the first quarter through March 19. That’s double the amount it made during the same period in 2019 (pdf) and would be its highest quarterly trading income since going public five years ago.