Everyone Gets Arbed Eventually

The Wall Street Journal on the business of high frequency trading:

A costly high-tech arms race in which HFT firms relentlessly compete to shave tiny fractions of a second off data transmission times has also hurt their bottom lines.

Revenue at HFT firms from U.S. equities trading is projected to be just $850 million this year, compared to $7.2 billion in revenue from U.S. stocks trading in 2009, Tabb Group says.

Techniques pioneered by the upstart traders are now common at old-line financial firms. Goldman Sachs, for example, had 600 human traders supporting its cash equities business in 2000. That number is down to a handful, the bank said recently. They are supported by hundreds of engineers.

How could you think this wasn’t going to happen? The guys who made all the money in HFT early on have since reinvested – in real estate, NHL hockey franchises etc. Because if your only edge is first-mover and technological, you know the edge isn’t going to persist forever. The smart players know this because they learn from history and see the writing on the wall.

Everyone gets arbed eventually.


Sale of Once Hot High-Frequency Trading Firm Reflects Industry Troubles (Wall Street Journal)