High Frequency Trading in the US Industry Market Research Report Now Available from IBISWorld

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Although the High Frequency Trading industry enjoyed double-digit revenue growth on the back of investor uncertainty in the mid-2000s as high-frequency traders capitalized on the spread between the quoted and selling prices of financial instruments like stocks and equities, the enactment of the Dodd-Frank Act in 2010 placed a blanket of scrutiny and uncertainty over the industry. Due in part to the new regulation, and in part to industry saturation, the industry will remain restrained in the coming years. Firms remaining in the industry will have to shift their focus to strategy development (and away from speed, an issue that is mostly under control) in order to thrive over the next five years. For these reasons, industry research firm IBISWorld has added a report on the High Frequency Trading industry to its growing industry report collection.

IBISWorld Market Research

IBISWorld Market Research

Regulation and saturation will keep the industry constrained in the coming years

The High Frequency Trading industry came to life in the late 1990s, following the Securities and Exchange Commission's (SEC) authorization of electronic exchanges. Since then, technological advancements, bid-sell spreads created through investor uncertainty, demand from exchanges and government regulation “have defined its operations and performance,” says IBISWorld industry analyst Nikoleta Panteva. Operators in this space use their own funds to make a large number of electronic trades with the purpose of creating profit for themselves. As such, industry profitability moves in much the same way as its revenue. Over the five-year period to 2012, IBISWorld estimates that revenue has increased at an average annual rate of 11.6% to about $28.1 billion, including a 6.2% increase in 2012.

In the early years of the five-year period, the High Frequency Trading industry enjoyed double-digit revenue growth on the back of investor uncertainty. As traditional investors sought to sell shares of plummeting stocks, high-frequency traders capitalized on the spread between the quoted and selling prices of financial instruments like stocks and equities. However, the enactment of the Dodd-Frank Act in 2010 placed a blanket of scrutiny and uncertainty over the industry. This legislation's Volcker Rule banned banks from engaging in proprietary trading (in which institutions use their own funds to generate profit). As such, banks have begun to sell off their proprietary trading operations to individual high-frequency trading firms, limiting the size of the industry, explains Panteva. Over the five years to 2012, the number of enterprises has only inched up 0.3% per year to 459 firms.

The future of the industry looks constrained, largely dependent on regulations and saturation. IBISWorld projects that the Dodd-Frank Act, and similar laws following in its footsteps, will limit annual revenue growth over the next five years. Concentration is projected to increase as the industry moves from its currently saturated state to a phase of consolidation. Industry companies, like current major players Getco LLC and Renaissance Technologies for example, will have to shift their focus to strategy development (and away from speed, an issue that is mostly under control) in order to thrive in the highly regulated industry over the period. As such, employees will be even more valued, with annual salaries expected to increase. For more information, visit IBISWorld’s High Frequency Trading report in the US industry page.

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IBISWorld industry Report Key Topics

Firms in this industry primarily use high-speed and sophisticated computer programs to establish and liquidate stock positions in very short time frames, thereby generating a large number of trades on a daily basis. Companies may be organized as proprietary trading firms, as the proprietary trading desk of a multiservice broker-dealer or as a hedge fund. In each case, participants seek to end the trading day in a flat position and avoid carrying significant unhedged positions overnight.

Industry Performance
Executive Summary
Key External Drivers
Current Performance
Industry Outlook
Industry Life Cycle
Products & Markets
Supply Chain
Products & Services
Major Markets
Globalization & Trade
Business Locations
Competitive Landscape
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
Major Companies
Operating Conditions
Capital Intensity
Key Statistics
Industry Data
Annual Change
Key Ratios

About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.

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Gavin Smith
IBISWorld
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