On a side street at the southern tip of Manhattan, behind a long line of metal vehicle barriers, stands a tall glass building. Seventy-six stories up, a team of PhD’s tune computers to trade shares just a fraction of a second faster. This small, secretive firm accounts for at least 5% of all stock trades in America. This company is Hudson River Trading (HRT).
Founded by computer scientists from Harvard and MIT, HRT has quadrupled its head count in the last seven years as profits explode. Driven by the boom in meme stocks, 2021 may be the best year yet for HRT and other high frequency traders:
Hudson River Trading, a 400-person proprietary trading firm that specializes in equities and stock options, reaped about $1.2 billion from trading in the first quarter, an increase of more than 150% from a year earlier, according to people with knowledge of the results.
HRT and other high frequency traders profit from the bid-ask spread, or the difference between what a stock sells for and what it costs to buy. Those spreads tend to increase when markets are volatile, as markets in AMC and other meme stocks have been.
Hot stocks like AMC have also driven incredible trading volume, with the modestly-sized theater operator sometimes the most traded stock on the exchange. More volume gives companies like HRT more chances to collect that juicy bid-ask spread.
Citadel Securities, a market maker hated by many meme stock investors, is also making vast sums from the boom in meme stocks:
Citadel Securities and its majority owner Ken Griffin are among the big winners from a boom in retail investing, cashing in on the zero-fee trading that has lured huge numbers of first-time investors to the US stock market.
“Not only are retail market makers getting increased trading volume, they are likely getting increased profitability per trade,” said Tyler Gellasch, executive director of Healthy Markets Association, a trade group.
High speed trading firms get these orders from brokerages like Robinhood. Robinhood gets payments from those firms for steering orders their way, rather than charging users commissions. This practice is controversial, and Citadel has been fined for giving retail investors worse prices than public markets.
As stock after stock soars amid the social media frenzy, firms like HRT and Citadel may have some very profitable days ahead.
More on AMC:
HEDGE FUNDS LOSE $12 BILLION ON AMC AND GAMESTOP
HEDGE FUNDS’ AMC DOOMSDAY SCENARIO
HEDGE FUNDS BURN $6 BILLION IN A MONTH SHORTING AMC (AND OTHERS)
Photo: “File:Three World Trade Center, New York, NY.jpg” by JJBers is licensed under CC BY 4.0
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