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For HFTs It's All About FX: Trading Currencies Is Now Virtu's Biggest Source Of Revenue

Tyler Durden's picture




 

One month ago, when looking at Virtu's S-1 just before the HFT company went public, we broke down the company's revenues and found something fascinating. This is what we said:

Which asset class was responsible for Virtu's trading perfection for yet another year.  It wasn't stocks because adding across the firm's America, EMEA and APAX equity product lines, Virtu revenues actually declined, from $201 million in 2013 to $195 million in 2014.  It also wasn't commodities, where revenue dropped by almost $2 million in 2014 to $93.1 million.

 

So what was it?

The answer, by a wide margin, was FX or as Virtu defines it "Global Currencies."

The punchline: "since the data is as of December 31, and extrapolating these growth rates, it is virtually assured that as of this moment, the primary source of revenue for Virtu is no longer equities but FX!"

Today, Virtu released its first public financials since going public, and our speculation has been proven correct: FX is now the largest revenue generator for VIRT, amounting to 28.4% of revenues in the quarter ended March 31, at $42.2 million, well above the $29.1 million generated from trading  America Equities and the $34.7 million from global commodities.

In fact, as the chart below shows, on an LTM basis, FX is now not only the biggest revenue item for the world's dominant HFT firm at $131.1 million, but is also the fastest growing source of profit, rising 103% on a year over year basis!

 

Some more details as broken down by Bloomberg: "Virtu’s chief executive officer, Douglas Cifu, highlighted a “particularly strong performance in global commodities and global currencies” in Wednesday’s statement. Virtu’s average daily net trading income rose 40 percent to $2.4 million in the three-month period. Total trading profit in the quarter climbed 40 percent to $148 million."

And as we predicted in 2012, it is all about FX:

The $5.3-trillion-a-day foreign-exchange market is becoming an increasingly important arena for the HFT firm. Earnings from currencies surged 66 percent between 2011 and 2013, while profit from equities grew just 6.4 percent, the company said in a filing in March last year.

To explain this dramatic shift we once again go back to a month ago when we wrote the following:

Why the pivot from stocks to foreign currencies? Simple: with retail now forever done with rigged, manipulated capital markets (at least they get a free drink losing money in a casino) and even banks scrambling to find any volume be it in flow or prop, there is just one remaining "whale" source of dumb money to be front run: central banks.

 

And as everyone knows, central banks trade mostly in the FX arena, or at least "legally" - when it comes to the NY Fed trading stocks it is still somewhat frowned upon which is why Citadel is tasked with the dirty work on behalf of the Liberty 33 trading desk.

 

So with Virtu, whose business model is geared to frontrunning whale orders in any market, irrelevant of their nature, now solely focused on clipping pennies ahead of central bank FX orders, it means that there is no longer any space for retail investors in yet one more market, where market wide stop hunts, squeezes and momentum ignition have become the norm, as the only "traders" left are a few central banks and every single algo that hasn't cannibalized itself yet.

 

So for those who still hope to make money in a market dominated by central banks with unlimited balance sheets, and HFTs whose job is to destabilize the market, good luck.

Good luck indeed, because while mere mortals lose money on every HFT-induced, momentum ignited stop hunt, for HFTs this is nothing but pure trading perfection as Virtu's result continues to demonstrate: over 6 years now with just one trading day loss. And all of it "perfectly legal."

Oh, and when the USD flash crashes again, expect some trader in Thailand operating out of his parents' basement to once again be scapegoated for disrupting yet another market that now has zero liquidity thanks to HFTs.

 

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Wed, 05/06/2015 - 07:54 | 6064947 ebworthen
ebworthen's picture

So now we know why the Dollar and Euro have been see-sawing about.

The International Financial Casino is open for business! 

Get your free drinks and spin the roulette wheel!

Wed, 05/06/2015 - 08:02 | 6064965 PartysOver
PartysOver's picture

Fluffers for Currency.  Seems appropriate.  (Google fluffers)

Wed, 05/06/2015 - 08:15 | 6065001 Oh regional Indian
Oh regional Indian's picture

Yeasssss, this is a BIG one. India has loads of FX traders, the ads are here 24X7, all the huge margin buyers...total clusterfuck waiting to happen.

But yeah, in this BIZZARO time, making money on money, rather making fake money on fake money...

Such a tell....

Sequence 15: Tabla + Flute... ;-)

https://www.youtube.com/watch?v=DJU_flXZMuk

Wed, 05/06/2015 - 08:11 | 6064984 stocktivity
stocktivity's picture

It's all Bullshit!!!  Down 140 yesterday....make it all back today. Janet printed more bucks out of thin air overnight and has your back covered.

Wed, 05/06/2015 - 08:11 | 6064987 ZH Snob
ZH Snob's picture

I'd rather trade baseball cards than currencies, and I hate baseball.

Wed, 05/06/2015 - 08:57 | 6065144 new game
new game's picture

fx trades, the gamblers' nirvana....

beats a margined short sale any day, ha...

got rings and bags under your eyes?

high blood preasure?

walking death?

ready to jump?

plez do...

Wed, 05/06/2015 - 10:29 | 6065605 Butterflying
Butterflying's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.jobs-review.com

Wed, 05/06/2015 - 08:03 | 6064969 disabledvet
disabledvet's picture

Take all your oil profits and trade currencies with them...which eliminates all your oil profits causing you to need to pump more oil.

Wed, 05/06/2015 - 08:11 | 6064982 Blopper
Blopper's picture

Put a limit market order to buy at several price level below.

Then smash the price down near to the limit order with spoofing, layering, wash trades, etc.

Collect as much as possible from others' stop losses and margin call/forced selling/account liquidation.

Repeat on the upside.

Wed, 05/06/2015 - 08:12 | 6064990 Blopper
Blopper's picture

Any Tom, Dicky, and Hairy with Virtu's technical capabilities can do just the same.

And without such unfair privileges Virtu would have gone bankrupt from the start.

Wed, 05/06/2015 - 08:16 | 6065005 Oh regional Indian
Oh regional Indian's picture

Hairy palms trading FX? Hmmmm...that is a first ;-)

Wed, 05/06/2015 - 08:13 | 6064997 shitco.in
shitco.in's picture

I wonder if Virtu considers Bitcoin to be a currency or commodity? Strange things in the BTC markets recently... about to get worse. http://insidebitcoins.com/news/alphapoints-new-service-to-streamline-bit...

Wed, 05/06/2015 - 08:30 | 6065041 Chippewa Partners
Chippewa Partners's picture

Profits are part of the Long Grey Line of doing business.   Big profits come from the bowels of West Point.

Wed, 05/06/2015 - 10:00 | 6065430 prefan4200
prefan4200's picture

Oh, yayus, it's aaaaaalll puhfectly leeegal!!

Wed, 05/06/2015 - 17:08 | 6067097 PrettySkulls
PrettySkulls's picture

gotta chuckle.

I make plenty in currency markets.

But then again, stoploss orders are the biggest scam in trading. Its taught as the easy answer to protecting yourself from loss, but really just provides a way for your position to get taken from you at a better price. So much easier to teach people to get fleeced and say "its for your own good" than teach them to correctly manage a position.

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