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"Holy Grail Of Trading" Crosses Into The Twilight Zone: HFT Firm Virtu Has Lost Money Once In 1,485 Trading Days

Tyler Durden's picture




 

One year ago, when HFT powerhouse Virtu launched its first attempt to go public and finally gave the world a glimpse into its trading perfection engine, we were stunned to learn that through the "miracles" of frontrunning, momentum ignition, quote stuffing, subpennying and all those other market manipulation techniques that have made HFT a staple - if extremely profitable - parasite of fragmented, broken "markets", in its S-1 it wrote that "as a result of our real-time risk management strategy and technology, we had only one losing trading day during the period depicted, a total of 1,238 trading days." We urged readers to "let that sink in: one trading loss day and 1237 days of profits." To paraphrase: one losing day in five years of trading. We said that "that, ladies and gentlemen, is the Holy Grail of the New Normal broken, manipulated markets."

A month later, Michael Lewis published Flash Boys and finally explained to the common person (if not corrupted, captured and purchased SEC regulators) what we have been pounding the table since 2009: that as a result of HFTs, markets are now two-tiered, unfair, broken, fragmented and manipulated in broad daylight, and since the HFT lobby controls the SEC, nothing will change.

Subsequent to Flash Boys, Virtu decided to pull its IPO due to the backlash against algorithmic rigging. However, now that a year has passed, and the S&P is some 400 points higher, thanks mostly to that other master market rigger, the Federal Reserve and its central bank peers, everything has been forgotten and forgiven. After all, who cares if the market is rigged and broken if as a result it goes higher, right?

Which brings us to yesterday, when Virtu decided to give its IPO another go, and filed an amended S-1, in which there was nothing really new: all the same rigging strategies remain, and were not only not punished, but were rewarded with $723 million in revenue in 2014.

But the punchline, and the reason why the joke continues to be on everyone else who still believes in "fair and efficient markets", is that Virtu just updated its trading record for 2014.

Here is the stunner which takes the Holy Grail of trading, and throws it right into the twilight zone of aggravated, constant market manipulation:

"The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2014. 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 the period depicted, a total of 1,485 trading days..."

 

Actually not only did Virtu not have a trading day loss in all of 2014, but on its "worst" trading day, the firm made "only" $800,000 to $1,000,000, the highest "worst" bucket in its history, suggesting that even as trading volumes continue to collapse, Virtu gets more and more aggressive with its "strategies", something that can be seen on the chart below showing the increasing prepondrance of higher profitable trading days in 2014 vs 2013.

And this is how Virtu explains its unprecedented trading succes, one which takes the Holy Grail of trading and updates its to Ver 2.0:

"Technology and operational efficiency are at the core of our business, and our focus on market making technology is a key element of our success. We have developed a proprietary, multi-asset, multi-currency technology platform that is highly reliable, scalable and modular, and we integrate directly with exchanges and other liquidity centers. Our market data, order routing, transaction processing, risk management and market surveillance technology modules manage our market making activities in an efficient manner and enable us to scale our market making activities globally and across additional securities and other financial instruments and asset classes without significant incremental costs or third-party licensing or processing fees."

Which is just a lot of fancy words for perfectly legal, regulator-endorsed and risk-free frontrunning of legitimate trades.

And just in case the punchline was lost in all that, here it is again: Virtu made money on 1,484 of 1,485 trading days.

This is a successful track record of 99.93%, or as the SEC and the math PhDs who have taken over the market would call it: "perfectly normal."

 

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Sat, 02/21/2015 - 14:56 | 5812487 HonkyShogun
HonkyShogun's picture

Go long banker-be-good-sticks.

Sat, 02/21/2015 - 14:59 | 5812500 Remington IV
Remington IV's picture

front running

Sat, 02/21/2015 - 15:07 | 5812526 knukles
knukles's picture

"These guys are good"
        -Tony Soprano

Sat, 02/21/2015 - 15:17 | 5812545 Thirst Mutilator
Thirst Mutilator's picture

OT: Hey Tylers, if its a slow news day, we could have some fun with this one [or did I miss this thread here]? ~ lol

 

Putin ‘Beat Ex-Wife and Had Secret Facelift’

http://www.newsweek.com/putin-beat-ex-wife-and-had-secret-facelift-explo...

 

can't let the 'canned commentary' from Newsweek & Telegraph UK bloggers be the only blogosphere spittle on this subject.

Sat, 02/21/2015 - 15:34 | 5812597 nope-1004
nope-1004's picture

The show’s makers apparently obtained access to previously unseen files by an unidentified Western intelligence agency

 

And there you have it.  Propaganda in high gear.  The US government is in freefall and total chaos providing such "intelligence".

Sat, 02/21/2015 - 16:08 | 5812734 Thirst Mutilator
Thirst Mutilator's picture

In a weird sort of way... With the volume of lies required to cover up other lies & propaganda... I guess one could say that the motherfuckers earn their pay.

Sat, 02/21/2015 - 16:20 | 5812773 What does it al...
What does it all mean's picture

They are a bunch of f__king liars... Either they outright lied, or they don't take enough risk.  

Picture this.  They flip a coin until they get it right... and when they do, they stop.  

$200M or so in revenue is NOT enough to justify a $2B to $3B valuation... What a joke, they are just trying to get IPO'ed and out.

Total Scam.  For their investors, shareholders and even their employees. 

Sat, 02/21/2015 - 17:49 | 5813117 pndr4495
pndr4495's picture

H igh F requency S camming is what it is and it's RISK FREE trading for HFTs and RISK EXACERBATED trading for non HFTs. 

Sat, 02/21/2015 - 17:56 | 5813146 smlbizman
smlbizman's picture

there is room for improvement.....

Sat, 02/21/2015 - 18:32 | 5813267 Pairadimes
Pairadimes's picture

An HFT firm called Virtu? Must have a huge set of balls. How do these guys even walk?

Sat, 02/21/2015 - 15:15 | 5812546 Pladizow
Pladizow's picture

Do ya think, just maybe, that retail was on the other side of those trades?

Sat, 02/21/2015 - 16:07 | 5812732 Devils Advocate
Devils Advocate's picture

How many days until they control all the worlds wealth?!?!

Sat, 02/21/2015 - 14:57 | 5812488 Squid Viscous
Squid Viscous's picture

rigged!

Sat, 02/21/2015 - 14:58 | 5812492 whatthecurtains
whatthecurtains's picture

That sort of record was normal for Madoff Investment Securities

Sat, 02/21/2015 - 15:16 | 5812550 garypaul
garypaul's picture

No, even he didn't go that far lol

Sat, 02/21/2015 - 14:58 | 5812494 A Lunatic
A Lunatic's picture

The BIG Club just keeps getting bigger and bigger..... (financially speaking of course; no you're still not in it)

Sat, 02/21/2015 - 14:59 | 5812498 SilverMoney1
SilverMoney1's picture

Can't beat 'em, join 'em.

Sat, 02/21/2015 - 15:00 | 5812501 nope-1004
nope-1004's picture

That's only a 99.93% successful trading record, not 100%.  I'm sure there is room for improvement.

Sat, 02/21/2015 - 15:34 | 5812596 tarsubil
tarsubil's picture

Going forward it will be 100%. If anyone doubts, they can point to that one day.

Sat, 02/21/2015 - 19:40 | 5813438 SoilMyselfRotten
SoilMyselfRotten's picture

No doubt the writer of their algos is still pissed and wants to know who fucked up that day

Sat, 02/21/2015 - 20:46 | 5813584 Karlus
Karlus's picture

Can you imagine? I think that guy's photo is on their wall of shame

Sat, 02/21/2015 - 15:00 | 5812502 Skateboarder
Skateboarder's picture

Roger Bliss should've HFTd...

Sat, 02/21/2015 - 15:00 | 5812503 Pareto
Pareto's picture

one day they will get there ass handed to them........one day.

Sat, 02/21/2015 - 15:00 | 5812504 Bunga Bunga
Bunga Bunga's picture

Your 401k loss is their HFT gain.

Sat, 02/21/2015 - 15:01 | 5812507 H. Perowne
H. Perowne's picture

Main Street brings forth innumerable things to nurture Wall Street.
Wall Street has nothing good with which to recompense Main Street.
Hang. 
HangHangHangHangHangHang.

Sat, 02/21/2015 - 15:06 | 5812523 To Infinity And...
To Infinity And Beyond's picture

"our focus on market making technology". 

Doesn't that say it all....

Sat, 02/21/2015 - 15:09 | 5812529 Cripkuwy
Cripkuwy's picture

Nice HFT poker game...just what happens when there's nobody left to play? Play solitaire?

Sat, 02/21/2015 - 15:09 | 5812530 kowalli
kowalli's picture

how to steal people money. Lesso one...

Sat, 02/21/2015 - 15:13 | 5812541 SmedleyButlersGhost
SmedleyButlersGhost's picture

Don't all the major players have these HFT systems? And they have all the $$$. The small guys don't have anywhere near that kind of $$$ even in the aggregate. So who is on the losing side of all of this?

Sat, 02/21/2015 - 15:39 | 5812614 SilverCoinLover
SilverCoinLover's picture

A very good question! 

I would guess the losers are the individual day traders who try to fill an order for 1000 shares of a stock at say, $3.00 a share, but it gets filled at $3.01 or $3.02, and then when they sell they get hit again for a penny or two loss. I think it's called skimming.

But I'm sure there are other causes on the losing side too, I'll let other ZH posters leave their two cents worth.

Sat, 02/21/2015 - 20:03 | 5813490 SmedleyButlersGhost
SmedleyButlersGhost's picture

Can the individual day traders really be that big a $$ amount to be the other side of the trade?  sorry - I don't get it

Sat, 02/21/2015 - 16:49 | 5812870 Dre4dwolf
Dre4dwolf's picture

People looking to retire, whos money do you think is sputtering out of the gears of these algos?

Sat, 02/21/2015 - 15:14 | 5812544 razorthin
razorthin's picture

Parasites.  They produce nothing - at least nothing for the majority of those who drove what was once the "real economy".

Off with their fucking heads!

Sat, 02/21/2015 - 15:21 | 5812560 garypaul
garypaul's picture

No question they produce nothing of real value. Parasites is the correct term.

Sat, 02/21/2015 - 15:21 | 5812562 zeropain
zeropain's picture

and the bigger the leachs gets from their success the more blood they will need to suck on, until the host gets sick and could die.

Sat, 02/21/2015 - 15:17 | 5812551 Yen Cross
Yen Cross's picture

  When you're racing Top-Fuel dragster vs a Red Rider wagon, the dragster always wins. That's why we have classes/regulation of which cars race eachother.

 Anyone that thinks Virtu is making money based on financial trading brilliance needs their head examined.

Sat, 02/21/2015 - 15:18 | 5812554 zeropain
zeropain's picture

The end of the human race will problaby be a HFT algo that grew to be concious and realize it is better off without humans.

Sat, 02/21/2015 - 15:28 | 5812580 H. Perowne
H. Perowne's picture

"Hate. Let me tell you how much I've come to hate you since I began to live. There are 387.44 million miles of printed circuits in wafer thin layers that fill my complex. If the word 'hate' was engraved on each nanoangstrom of those hundreds of miles it would not equal one one-billionth of the hate I feel for humans at this micro-instant. For you. Hate. Hate."

 

-Harlan Ellison, I Have No Mouth and I Must Scream

Sat, 02/21/2015 - 15:26 | 5812573 buzzsaw99
buzzsaw99's picture

haters gonna hate [/s]

Sat, 02/21/2015 - 15:30 | 5812587 Seasmoke
Seasmoke's picture

If you are making a million or more every fucking trade day. Why would you ever want/Need to go public ????

I would be afraid to show that chart. Fuck. Biff from Back to the Future couldn't do this good. 

Sat, 02/21/2015 - 18:01 | 5813168 Clever Name
Clever Name's picture

Thats a great question. Why indeed? I can only think of (que LTER) power over others (shareholders)?

Maybe the owner doesnt really care, and its the shlubs below him that really want to, so they can cash in?

 

Can I get in on this game somehow?

Sat, 02/21/2015 - 15:35 | 5812601 Ban KKiller
Ban KKiller's picture

Ok, then. My faith is restored. My faith that there is no free market, that is. 

Sat, 02/21/2015 - 15:46 | 5812642 Atomizer
Atomizer's picture

New technology. Remember the days of moving closer to pingpig 1 to 2ms advantage? You can be blocked out, severed by your nuts. Ask the nigger in the Whitehouse. Bet he wants DNS money for 2016. They will unlock signal. Watch the entire DNC fundeing disapper into Jon Crorzine. The play game will restart. 2012, $882,932 bundler program for Obama. Sorry for riddles, you understand. winks.

https://www.opensecrets.org/pres12/bundlers.php

Sat, 02/21/2015 - 15:51 | 5812665 arby63
arby63's picture

And this is the primary reason why we have no real price discovery for anything. As the masses lose ground, however, a real wake-up call is inevitable. Don't know when but it will be fun to watch.

Sat, 02/21/2015 - 17:52 | 5813127 WhackoWarner
WhackoWarner's picture

When?  Some of us have been awake for a long time. And it has not been fun to watch.

When?  I keep seeing the writing on the wall and hear the beat of swan wings,  But shite the can gets kicked.

 

My popcorn ran out circa 2004 as did my amusement.  There really is nothing funny about this. 

 

 

Sat, 02/21/2015 - 15:52 | 5812669 kchrisc
kchrisc's picture

Could it also be a case of their chief traders being Charles Ponzi, and Bernie Madoff?

The banksters need to repay us.

 

Hedge Fund: A trading firm that magnifies, levers up, the banksters' theft.

Sat, 02/21/2015 - 16:18 | 5812771 yrbmegr
yrbmegr's picture

If you just don't sell anything in the red, you will never have a losing trading day.

Sat, 02/21/2015 - 16:34 | 5812817 Sanity Bear
Sanity Bear's picture

and the guy whose test-algorithm-gone-live ruined the perfect record has gone on to study pneumatics

Sat, 02/21/2015 - 16:47 | 5812860 Dre4dwolf
Dre4dwolf's picture

Make the HFTS pay a buck a trade in taxes and see how quick this shit stops and how low volume goes ^^

Sat, 02/21/2015 - 17:32 | 5813045 PhilofOz
PhilofOz's picture

A Tobin tax would soon put these assholes in place but that suggestion gets knocked down on ZH. For every winner there is a loser, so who are all these losers out there? May as well bet your money on the pari-mutual or on the roulette wheel, seems you'd have just as much chance as when trying to trade against these parasites.

Sat, 02/21/2015 - 23:08 | 5813916 Dre4dwolf
Dre4dwolf's picture

most people who put their money into the markets lose or break even.

Roullette . . .  48.6% (more or less) chance to win on the spot and double your money, while having fun and free drinks.

I know where I put my money on occasion.

That and Baccarat. . . quick hits, go positive , drink and leave... if you lose. . . double down . . . if you lose again, quadruple down . . . till you win, then leave cant have fun like that in the markets . . . o and to boot at a casino . . . it costs almost nothing to trade ^^ . . . 

 

day trading has tomany limitations for the average joe. . . you will never close your positions exactly where you want to with the algos cutting the line to sell before you...

You are 20 miles away from the server with 20ms latency.... and the banks are half a block away with a 0ms delay fiber optic channel hooked up to a quantum computer crunching numbers to rob you.... not worth the fucking time, by the time you hit sell or buy the quantum computer in JP'S basement has determined what you will do, when you will doit, and how to skim your trade to the point where you will hardly cover your trade fees.

 

On the flip side, you can have a shit ton of fun day trading crypto currency for almost zero trade fees... and all trades are instantaneously completed.

Sat, 02/21/2015 - 16:59 | 5812912 CerpherJoe
CerpherJoe's picture

Try: can't trade an equity more than once a day.

Sat, 02/21/2015 - 17:43 | 5813085 Puerto Rico is ...
Puerto Rico is worst than Greece's picture

It just takes one day for a black swan event to bankru... I mean, for them to receive a bailout and a software patch.

Sat, 02/21/2015 - 17:45 | 5813103 WhackoWarner
WhackoWarner's picture

First I NEED an air sickness bag.

Once I rinse my mouth of vomit I THEN request the flight attendant to bring me vodka. ONE shot for every successful trading VIRTU day in 2014.

If I am not dead of alcohol poisoning by Monday I will BTFD like a good girl should.

 

 

Sat, 02/21/2015 - 18:51 | 5813321 PADRAEG
PADRAEG's picture

What evidence do we have for these trades' profitability?

 

Sat, 02/21/2015 - 19:10 | 5813374 q99x2
q99x2's picture

Must be sanctioned and above the law. If the central banks aren't giving them the money directly then they they better not take too much of it without asking.

Sat, 02/21/2015 - 19:14 | 5813384 cart00ner
cart00ner's picture

My question is did they create anything tangable, like pencils, tampons or even food with all this trading.

My guess it was hard working peoples savings or retirement plan they robbed.

Well done guys - you should be proud.

Sat, 02/21/2015 - 20:04 | 5813496 ihatebarkingdogs
ihatebarkingdogs's picture

I'm not "in the market". I have no equity holdings. I don't day trade. I don't have a pension. At first glance this theft by HFT's doesn't affect me. I shouldn't give a crap.

I live in California. We have very powerful public employees' unions that feel their pension promises are sacronsent and that come hell or high water "The State" will have to come up with the funds to fulfil those promises.

CALPERS is the largest pension fund in California, and is the actuary responsible for managing the funds, and fulfulling these promises. When they can't meet future pay-outs, they will come to the State for additional funding. Any loss to current holdings, hastens the oncome of these shortfalls.

The state will come after me in the form of increasing the rent (property tax) I pay on my principal residence. While we still have our Prop 13 protections for now, I'm sure not a day goes by that staffers and legislators don't scheme and evision ways to resind these limits on extortion against property owners.

So the theft by HFT's does affect me. The losses to funds such as CALPERS will force the politicians to extract even more from producers to cover the promises.

 HFT's, CALPERS, public employees and their unions can all go perform an anatomically impossible act.

Sat, 02/21/2015 - 20:28 | 5813549 sheikurbootie
sheikurbootie's picture

I have an acquaintance friend that retired in 2000 after working 10 years for the Oakland PD.  He received credit from his active military service to meet the liberal pension requirements.  His yearly retired salary is $111,000 for life.  He "retired" at 40. 

Now, someone explain how that's going to affordable multiplied by hundreds of thousands of government workers.  California is beyond bankrupt and they don't even know it.  If I owned any property their I would sell it yesterday.  This will not be an orderly exit when it stops working.

Sat, 02/21/2015 - 21:34 | 5813708 mijev
mijev's picture

My first insight came during the bush midterms. The dow would swing wildy for most of the session but always ended up just a few points from where it started the day. Mathematically improbable if not impossible. I stopped watching the markets pretty soon after that but I most definitely lost out by not betting on the absolute power of the fed.  

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