Trading Activity and Spreads

From the Wall Street Journal Today

Traders make money when the market moves. All they have to do is be on the right side of the market. Its like leverage, when you are on the correct side of the fulcrum you can make a bunch of money. On the other hand, if you if you are on the wrong side, it gets bad very, very quickly!

Certainly we have had plenty of activity and very big changes. The result has been the wide bid-ask spreads per the following chart.

High-Frequency Traders Feast on Volatile Market By Scott Patterson and Alexander Osipovich
Fast-trading investors have made big profits during the market’s volatility, with strategies ranging from sophisticated computer algorithms to ones as simple as “selling the rips and buying the dips.” High-frequency traders, which typically deploy sophisticated algorithms and powerful computers to move in and out of markets at lightning speeds, tend to do well when markets are volatile. Virtu Financial, one of the largest high-speed traders, last week said it expects to post trading income of between $509 million and $519 million in the first quarter, more than double the amount from the same period last year and its highest quarterly trading income since the company went public in 2015. Virtu’s results are “a quarter for the record books,” Piper Sandler analyst Richard Repetto wrote in a note. Virtu’s stock is up 42% this year while the S&P 500 is down 19%. The only other publicly traded high-speed trading firm, Amsterdam-based Flow Traders, is up 22% year to date. High-frequency firms have struggled in recent years amid a period of low volatility and steadily rising markets. Still, they are estimated to account for around half the trading volume of the U.S. stock market, having largely replaced the floor traders who once controlled exchanges’ ebb and flow. Virtu is a designated market maker for the New York Stock Exchange. Like market makers, high-speed traders often make money on the difference between buy and sell orders, known as the spread, by selling high and buying low as stocks tick up and down. Spreads in heavily traded stocks, such as Apple, which are typically 1 or 2 cents, have ballooned to 30 cents or more in recent weeks because of the highly volatile, fast-moving markets. While wide spreads indicate riskier market conditions, firms that can exploit the difference can earn sizable profits. Some plain-vanilla rapid-trading strategies are also faring well, traders said. “Our traders are having some of their best months in years,” said Dennis Dick, a trader at Bright Trading, a Las Vegas broker dealer that provides computer-driven trading platforms for day traders. He said one of the strategies that has worked best is “selling the rips and buying the dips”—selling stocks after big moves higher and buying after sharp downturns