High Frequency Trading is generating big headlines by creating substantial profits at breakneck speeds. Photo: RioPatuca | Shutterstock.
A stock that’s doing well doesn’t have a dramatic profile when reviewed on a graph. There are small trades being done by individual investors buying or selling 100 shares at a time. These cause infinitesimal rises and dips. This same stock that’s existing on a steady and even trend displays a noticeable rise and dip when a pension fund or other large institution buys or sells millions of shares. The sale of a large number shares temporarily reduces the cost of the stock. High frequency traders (HFT) buy during the big dip with the expectation that they can sell the stocks a few minutes later for a profit.
As HFTs have increased in popularity as a tool and investment strategy they have had to increase their speed and efficiency. Instead of competing against large institutions and single investors HFTs are competing against one another. Technology has reduced reaction time to milliseconds. The competition has attracted the attention of leaders in the financial industry like Rene Kern, Managing Director at General Atlantic, who sits on the Board of Directors of the firm KCG.
The growth of HFTs has attracted the attention of presidential candidates as we approach the election year. Hillary Clinton has proposed a tax targeted at what she sees as harmful HFT practices. By advocating for the rights of the small investor Clinton may be trying to improve her public perception tarnished by the support she receives from wealthy backers.
Despite the negative perceptions and possible ethical issues HFT is here for the foreseeable future. Here are a few of the leading High Frequency Traders currently garnering headlines and substantial profits at breakneck speeds:
DRW Trading
Based in Chicago with offices in London, Montreal, New York, San Francisco, and Singapore, this company employs about 500 people around the globe.
Jump Trading
This company is headquartered in Chicago and has offices in New York, London, and Singapore. Launched in 2000, it has become a powerful player in the HFT industry and a significant member of the Chicago Mercantile Exchange.
KCG
A powerful player in the HFT industry employing 1,000 people around the globe, KCG was created in 2013 after the merger of Getco and Knight Capital.
IMC
With 400 employees spread across their offices in Amsterdam, Chicago, Hong Kong, New York, Sydney, and Zug, IMC was founded in 1989, which makes it one of the oldest HFTs.
Two Sigma International
A reputation for regularly throwing office fiestas and providing employees with an on-site music studio for recording their own performances sets this HFT apart from its peers. Founded in 2001, they used an expertise in technology and big data long before it impacted the industry.
