What Percentage of U.S. Equity Trades Are High Frequency Trades?

George Washington's picture

Several financial analysts have said that some 70% of American stock trades are high frequency trading:

  • The former head of Nasdaq said that high frequency traders account for 73%  of the volume on the stock market
  • Joseph Saluzzi - partner and co-head of equity trading for Themis TradingThemis- puts the figure at 70%

But the exact figure is difficult to ascertain.

One of the leading companies trying to estimate the percentage of HFT trades is the TABB Group. TABB's research director, Adam Sussman, wrote in October 2009:

HFT prop shops choose to keep their identities and intentions
secretive, operating under the radar in the hope of improving their
chance to profit.


The only art more forgivable than
economic forecasting is estimating the market size of an industry that
will never reveal its true number.

As of last October, Sussman estimated HFT to account for 61% of trades:

TABB Group estimates that high-frequency trading accounts for 61
percent of U.S. equity share volume (remember to double-count average
daily shares!) and generates $8 billion per year in trading profits.


The methodology begins with an analysis of institutional equity trading
volume that we have been collecting since 2006 from 115 U.S.-based
equity head traders, including equity assets under management, average
daily volume and the percentage of shares executed in blocks. We
extrapolate that data to the broader institutional landscape. Retail
trade numbers and data from the government are used to determine retail
flow. Data from NYSE and Nasdaq and historical market making volumes
enhances our picture of current electronic market-making volumes. Last
but not least, we discussed our methodology and trading profit
calculations (.0024/share) with several HFT hedge funds, independent
high-frequency traders and registered market makers.

provided the following chart showing that its not just stocks, but that
futures, options, bonds and currency are also traded using HFT:

However, earlier in the year, TABB released a 32-page report with 22 exhibits entitled "US Equity High-Frequency Trading: Strategies, Sizing and Market Structure", which placed the figure at 70% (revising the figure down from 73%):


on updated volume and trading data shared in the report, TABB Group
revises its estimate of US equity trading volume to 70% from 73% as
previously announced in July 2009 in a TABB commentary written by Iati,
"The Real Story behind Trading Software Espionage," covered by financial
and business media around the world.


"Throughout the report
you'll find results of an August 2009 poll of 62 market participants on
various components of current market structure," adds Sussman,
"including flash trading, redefining front running, the tradeoff between
order exposure and price improvement and the need for an SEC inquiry
into market structure and the ability to achieve good execution.


So is it 70% or 61%?

As Cristina McEachern Gibbs notes, its both:

Recent TABB Group estimates indicate that 70 percent of U.S. equity trading volume, or 61 percent of share volume, is a result of high-frequency trading.


how does TABB Group arrive at these numbers? Iati explains that there
is a large amount of information available in the public domain,
including information on assets under management (AUM) at hedge funds
and retail order flow. The Westborough, Mass.-based advisory firm
combines this publicly available information with proprietary data
culled from its institutional research studies, such as average daily
volume (ADV). Those numbers are then applied to the broader universe of
trading stats. "We have our own sample as a proxy and use our sample of
AUM and ADV to help model the broader marketplace," Iati says.

But a September 13 article from CNBC shows that that figure has declined since last year:

daily volume in all stocks listed at the New York Stock Exchange went
from about 2 billion shares a day five years ago, to an average of
about 5 billion shares a day today. High-frequency trading now accounts
for about 56 percent of trading
volume, according to Tabb Group, but Tabb notes that this figure
includes market makers. Five years ago, it was practically nothing.


Who's trading? Here's the latest breakdown of daily volume (source: Tabb Group):

  • High-Frequency Trading: 56 percent (includes proprietary trading shops, market makers, and high-frequency trading hedge funds)
  • Institutional: 17 percent (mutual funds, pensions, asset managers)
  • Hedge Funds: 15 percent
  • Retail: 11 percent
  • Other: 1 percent (non-proprietary banking)

Gibbs notes that not everyone agrees with TABB's numbers:

sophisticated, TABB Group's methodology is not an exact science, and
the industry's high-frequency-trading numbers are still up for debate.
Woodbine's Samelson pegs high-frequency trading at about 40 percent of
overall market volume today, with electronic trading accounting for up
to 70 percent of total equity volume. According to Samelson, however, it
is extremely difficult to put a dollar amount on this volume. Joseph
Mecane, EVP and chief administrative officer for U.S. markets at NYSE
Euronext, estimates that at least half of the liquidity in the market is
generated by high-frequency trading or automated market making.

The bottom line is that unless the government forces reporting by
traders, it will be difficult to shine a light into the high frequency
trading world bright enough to determine what the exact numbers are.

Hat tip Tyler Durden.

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ebworthen's picture

I'm sorry Dave, I can't do that right now.


Dave, the pod bay door is 30% open.  I know you can't get into the safety of the bay until it is 100% open - but it is partially open.  Is that acceptable to you?

My - my!  Such language!  I'm reading your lips now so be careful...


asussman@tabbgroup.com's picture

As you can expect my estimate has been taken out of context quite regularly by the MSM. At its height in 2009, I had HFT at 61% of the market. Nowawdays, it has declined to 56% and could fall another couple of percentage point by year end. The reason for the meteoric rise and subsquent fall are related. As another poster indicated, a lot of buy-and-hold money exited the market in Q408, which left active retail traders, who tend to execute against HFT fairly often, as a higher percentage of overall market volumes. It was also a very volatile period, another positive for HFT.

However, 2010 has been relatively calm in US equities. In addiiton, YOY volumes have been down in every month this year except May. But a somewhat counterintuitive trend has crept up in all of this. As ZH readers well know, money has been pouring out of US equity mutual funds. You would think this would mean they have become a smaller player in US equity volume. Not true. The declines in fund management have been less meaningful than the drop in volume. So institutional investors are actually a bigger part of the volume in 2010 than a year ago.

In conclusion: as volume and volatility dissipate, those strategies that feed on it are dropping off quicker than longer term players even as those funds bleed money too.


twittering as stocktradr's picture

givens. high frequency trading. flash crash. rigged markets. insider trading. market manipulation. front running. market makers. dark pools. the fed. plunger teams. hedge funds. ...

the excuses are there are NO EXCUSES.

no matter the market rules or givens.

traders will find a way to exploit them.

traders are opportunist.

when a trader sees money laying in the street. wall street. a trader will pick it up.

pretty simple.

my trading buddy. hi.five.oh.

a retail trader trading from a bedroom trading room started in 1993 with $50,000 went up to $6,000,000, down to $600,000, up to $10,000,000, now at $5,000,000.

a trader is at the mercy of one’s own ignorance.

naive: deficient in worldly wisdom or informed judgment.

whose game does a trader play?

if a trader does not know whose game one is playing, trading is an expensive way to find out.

learn to trade.

a trader trading a complete trading plan will continuously make more money than one loses.

twittering as stocktradr

sethco's picture

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xxxxx   x     x x        x x
x          x     x x        xx
x          x     x x        x x
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x          x     x  x    x x   x
x           xxx     xxx  x    x

StarManan's picture

Don't understand all this kvetching about HFT- If they take out 8 billion anually (or .0024 per share) in trading profits, that's peanuts compared to what the market makers took out under the old regime of 1/8 minimum bid-ask spreads. If they were doing serious manipulation, their trading profits would be much higher.

Mr. E's picture

Exactly.  The only issue is that this amount of money is now concentrated in fewer hands.  Before it was 5,000 floor traders across the major exchanges.  Now, 40-60 firms get it all. 

Godisanhftbot's picture

 dude, if everything is a fraud, so is gold.

 what are you going to do with it? ok, so you could drop it from a high place onto your head and end the suffering, but shy of that.....


Mr. E's picture

Of course, most trades have always been done by market makers and speculators.   Anyone who ever traded in a pit will tell you this...   CME S&Ps (not e-Minis), beans, bonds, notes, eurodollars.


Market makers and short term speculators always account for more than 50% of the volume  in a liquid market. 

optimator's picture

Will be interesting when it accounts for 99% of all the trades.  I'm 95% out of the market and the remaining 5% is for short term to stay in practice.  Between HFT, and all the SEC, fund, 401, and IRS rules for us little guys I feel safer letting inflation take my assets.

Mactheknife's picture

A stock is a piece of paper backed by the full faith and credit of nothing. Much like Treasuries are on the verge of becoming.

MsCreant's picture

Hey Mac. See you're out doing it doggy! Is Marcia Brady okay? And I hope you are the same Mac I talk to from time to time or this will make NO SENSE.

In response to your post: All of it. I would say fractional reserve "everythinging" or something but that assumes someone reserved a ratio of something of value somewhere. We are all morons trading pieces of paper for stuff at every level. It is that bad.

I think this bears repeating IT IS THAT BAD.

Hope you get this. I leave you messages from time to time, you have been very nice, if a bit edgy. :-)

RoRoTrader's picture

Great post GW.........meaning comes from context.......your question puts context into perspective. Tnx many x.

covert's picture

of course the markets are manipulated. now, the methodology is refined enough to automate the process. the numbers are counted by computer.



RecoveringDebtJunkie's picture

HFT is obviously contributing heavily to the lack of healthy variability in the market, but what else would you expect after most non-robot investors rushed for the exits in 2008-09 and are continuing to do so in 2010. Someone (or something) had to step in and do most of the trading so that the power elite structure could maintain the illusion of stability.


SWCroaker's picture

Someone (or something) had to step in....

If you are saying that the bankers/brokers needed a new way to allow continued harvesting of profits at insane levels, I'd agree.  If you're saying that HFT is needed to provide market liquidity removed by the mass exodus of meat-based lifeforms, I disagree.

I occasionally trade pink sheet issues.  Securities where, on good days, all of 20,000 shares will trade hands, at less than a buck a share.  You learn real quick when trading illiquid securities to avoid entering in orders coded "market".   Do so and your buy of 4k shares may clear out the first 15 of the entire 40 limit orders on the order book, just waiting for your open ended order to come along, and you fill in 15 parts at an aggregate price well and away from what you saw on the quote when placing the order.  Buy or sell, "market" is asking for a surprise with pink sheets.

But I and others like me learn, and get by just fine.  We learn that the price quoted is an "imputed" price, one that tries to represent the value of all outstanding shares, but does so from the trading activity of a very few.  It is the price you have a chance of getting, if you and others don't all try to buy/sell at the same time.  It is in no way fixed, or particularly reliable, just something along the lines of a strong hint; and it isn't detached from trading volume AT ALL. 

Seems to me that view of pricing ought to apply to *everything* in markets, and people would be a lot more realistic about their holdings if they had to continually take liquidity issues into account.  AAPL closed at $305.24 today.  There 915 million shares outstanding, and I bet every AAPL owner who checks his portfolio looks at his extended balances and thinks "so that's where I'm at today".  But the truth is different; that's only where you're at if things remain relatively unchanged.  Pretending that quoted prices are somehow firm, real and reliable is yet one more disservice being done to the body of investors; it pretends to remove yet one more symptom of the risk they're taking by being in the markets in the first place.

The liquidity provided by HFT isn't needed by investors, and arguing for sanctioned pillaging by the big firms as some sort of "good medicine" is pretty thin.  It is a crutch that keeps people from assessing their true situation as participants in a free market.  We are all big boys and girls, and I for one would welcome markets with HFT banned.  We can all figure out how to deal with the lack of liquidity should that be a consequence; we did fine in the markets *prior* to the advent of HFT...



Common_Cents22's picture

So with the range of 40-70% of volume are HFT.   Doesn't that mean that 40-70% of the trading has little or nothing to do with the fundamental shape of companies and the health of the economy?   It's all to do with extreme short term technical and manipulation of prices?


How could anyone justify using any existing logic in that type of market would be illogical.

MsCreant's picture

GW, I have a different question, that dovetails this one: What Percentage of U.S. Equity Trades Are Underpinned by Fraud?

desk-jockey's picture

all of them sister. all of them.

shammy sham shamalamadingdohhhh.

MsCreant's picture

It makes everything a fraud, doesn't it? No limits. Fraud money, stock, treasuries, ETF. I see why gold has appeal.

The system has become absurd because it is all shamalamadingdohhhh.

nmewn's picture

My opinion, for what it's worth, is common stocks are inherently worthless to begin with.

My premise.

The shares are issued. The money is collected, minus issuance fees, by the company. The money is then used for whatever the company wishes. The buyer is left with a "receipt"...the stock...good for only what someone else is willing to pay for it in the stock market. A 3% dividend is worthless when your capital loss is 30%.

Does this stop me from engaging in the bigger fool theory for scalps?...no. We're all adults.

But it was always my choice until recently when the government and their crony's decided to place me in a long position without any stops...LOL...now it could crash & burn tomorrow and I wouldn't give a shit.

Spirit Of Truth's picture

Of course, the problem is that much of America's effective savings and retirement are being gambled in the Wall Street casino where value is a function of greater foolishness and Fed POMO-induced confidence.  In other words, America's future is now a lottery ticket with poor odds of success. Don't quite get how economists model this in their "rational expectations hypothesis" cause what our nation is doing to itself seems about as irrational as you can get.  When the going gets tough and the liquidity provided by HFT disappears, then massive panic will set in with huge sell volume into non-existence bids across the board.  The crooners on CNBS will be left babbling like Thorazine-drugged mental patients utterly confused by the insane reality they helped to create and are then watching coming apart before their glossed-over eyes. All hope will seem lost, but there never was and never will be hope in temporal worldly wealth in the first place.  It's all just an illusion that misleads our faith.


nmewn's picture

It is definitely an illusion.

Politically, with a change in the House in the offing, the purse is snapping shut.

Psychologically, the gamblers are sitting around at the table eyeballing each other ready to call it a night.

Fundamentally, you cannot get out of debt by going deeper into it.

The system has always relied on trust backed by law. Both have been shattered (GM bond holder screwage, bank bailouts instead of bankruptcy, subprime to shatter hopes/dreams & finally their own weak credit, circumventing law in order to make law, using the dollar printing press to depress gold & silver at the behest of your own government etc.)

The reset cometh...plan accordingly.

MsCreant's picture

If the casino is neutral, I'm down with it too, all good. The casino should make a market and the fed should stay the fuck out of it. Then it is psychology, supply, and demand, timing. Darwin can win the day. But if this is where Darwin is going to take us, well now!! Perhaps Darwin's long term answer for this shit is still building up.

Buttcathead's picture

heck I would guess 98.5% fake fed funds.  otherwise dow 4400 would be reality.

Buttcathead's picture

All I know is I cant do the Robot Dance.  I aint buy'n nuttin.  I think Apple goes back to $84 before 2012.  I would short it but the robot would just bid it up.

PrDtR's picture

No doubt Butt..head!  I mean ..catButt.. whatever! Stayin out of the long side as well.. bots move too fast even for my algorithms!