bySam MamudiLeslie Picker 5:18 PM EST February 20, 2015 (Bloomberg) -- High-frequency trading firm Virtu Financial Inc. reported another year without a single day of losses, extending a near-perfect streak stretching back to 2009 that contrasts with dwindling profits at competitors. Virtu made money every day in 2014, generating revenue of $723 million and net income of $190 million, according to financial statements filed with regulators Friday. The 148-employee company, which uses computerized strategies to buy and sell everything from stocks to currencies, has had only one losing day in its six years of operation. To fans of Michael Lewis, whose 2014 book “Flash Boys” argued high-frequency traders are rigging markets, such an unblemished track record is a sign of unfair advantages. Virtu’s retort, given in June by Chief Executive Officer Doug Cifu, is that the sheer volume of trades the company makes helps ensure it makes money. Virtu last year announced it wanted to publicly sell shares, but shelved that plans amid the uproar spurred by Lewis’s book. The company may go through with an initial public offering later this year, according to two people familiar with the matter, who asked to not be identified because the process is private. Industry Profits Revenue rose 8.8 percent at Virtu in 2014 versus the prior year, and net income climbed 4.3 percent, according to Friday’s filing with the U.S. Securities and Exchange Commission. Companies employing the high-frequency trading strategies earn about $1.3 billion annually in U.S. equities, down from more than $7 billion in 2009, according to a March report from research firm Tabb Group. Virtu trades more than just U.S. stocks, with its operations extending into foreign exchange, commodities, options and fixed-income products. The company strategies are “designed to lock in returns through precise hedging in the primary instrument or in one or more economically equivalent instruments, as we seek to eliminate the price risk in any positions held,” Virtu said Friday. “The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during a period of 1,485 trading days.” On average, Virtu completed 5.3 million trades a day last year, with 49 percent of the transactions making money, according to the document. ‘Law of Large Numbers’ “Over a million times day, we’re not making money,” Cifu said at an industry conference in June. “But when you add up the volume of instruments that we trade, the tens of thousands of strategies that we trade in all the different marketplaces, it’s simply the law of large numbers, and, as a result, yes, we are profitable every day.” Lewis’s book portrayed the stock market as an unfair playing field where insiders, particularly high-frequency traders, take advantage of everyday investors using questionable methods. Warren Buffett, the world’s second-richest person, has also criticized Virtu’s industry. “Michael Lewis is far from an expert on market structure,” Cifu said last year. “If you ask Warren Buffett how many national securities exchanges there are, he will look at you probably and say, ‘What’s a national securities exchange?’ The man’s a brilliant investor. I don’t pretend to tell him about Heinz Ketchup. He shouldn’t be talking about market structure.” Virtu makes markets in more than 11,000 securities and other financial products, trading on more than 225 exchanges in 34 countries, according to Friday’s document. The company competes with firms such as KCG Holdings Inc. as well as New York Stock Exchange market makers. To contact the reporters on this story: Sam Mamudi in New York atsmamudi@bloomberg.net; Leslie Picker in New York at lpicker2@bloomberg.net To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Elizabeth Wollman at ewollman@bloomberg.net Elizabeth Wollman http://www.bloomberg.com/news/artic...rader-virtu-extends-nearly-unblemished-streak
Parasites. But, but, they "add liquidity!" you say? Right, 98% of which is completely false/bogus. When the effective/pragmatic spread is 2-3 times what it appears to be, they're not reducing the spread - just gaming it. Front running is illegal.
Unbelievable 6 years and only 1 day with losses....those past 6 years have been nothing but a bull market....if this program and the algorithms they use is so successful why does anyone waste their time with financial advisors. Why not just implement this system where the masses can get guaranteed returns everyday for the rest of their lives.... Everyone knows these systems are front running the market second after second each and every day but no one is even paying attention, once liquidity dries up and freezes which it will that's when everything will collapse ..that's when everyone will be questioned ...must be nice to make millions of computerized trades every week for pennies on the dollar...adds up quick. They aren't creating any liquidity and you will notice that the day everything collapses because the algorithms aren't prepared for the worse...
them super cooled computers and direct lines to the exchanges must cost a fortune... good for them. note the industry profits are falling
Industry profits are falling because they've eaten the plankton, then the minnows, then the small fish, and now almost all that's left in the pond are the other big fish. The final move is to dump the IPO onto the sucker public for the final big payday.
5.3 million trades to make 190 million profit? That's less than 36$ per trade? That's almost nothing. This has nothing to do with trading. There are companies with more losing days but also with alot more profit. If their so called algorithms cannot perform better it will probably be a simple MA they use.
Most of the profit is front running orders and arbitrage via faster connections. Risk free trading. There will be massive lawsuits after the next crash, but by then it's too late to help the average Joe who is getting fleeced every time he places an order.
How can someone actually front run an order? Can anyone provide an exact way to do this on an electronic exchange?
Not sure if you're being sarcastic here. Profit per trade doesn't matter, in the end it's the dollar amount that counts. I'm 99.9% certain they don't use any MAs anywhere. With only 140 employees, that's still a considerable amount of money.