How they make $8B/y underperforming VOO?
Reference: https://www.businessinsider.com/hudson-river-trading-hrt-8-b...
In case you are unaware - very single trading firm makes money on fees, not by outperforming the market. This goes for firms like Vanguard too.
Just think about it for a little bit - if you could reliably outperform the market by any % with an algorithm why even start a company? Just take out loans, invest, make money, repeat and become rich. No expenses to manage a company.
I really want to know what you think this company does, precisely
If a company has customers, and those customers buy a product, the company charges a price for that product.
They don't...
b) If you don't have customers, why have a company?
There is no way to invest in the company, and the only way of becoming a "customer" is to engage in trading.
A customer might want to offload TSLA and are willing to pay the market rate of $329. This trade might work in HRT's favor if they can sell it for $329.01. It's just 1 cent, but over millions of transactions these small amounts of profit add up.
The value captured by HRT is meaningful in the aggregate, but tiny and irrelevant to the institutional clients, and therefore can't be thought of as a fee. What HRT provides in return for taking clients' trades is liquidity.
So then, you have to offer additional services. HRT has the SDP that they provide, and of course charge fees for. But then the question is why would anyone do this, versus just going through any other financial institution.
The answer is basically all up on their website
"As a liquidity provider, HRT develops automated trading algorithms designed to provide the best prices to our clients".
The question that should be asked is as a user, why would I want to sign up with HRT or any similar financial company? The answer for HRT is because you want to have access to more complicated financial derivatives - you don't need to sign up and pay fees to buy basic stock.
So they promise that their algorithms give the user the best price, which is a legal way of saying that you will pay less for a certain asset and make money on it, and you can't say that because you can't guarantee this.
And its well known that nobody ever gets rich of an algorithm in finance unless you are well established large firm intricately tied with the government that can move so much money as to influence trading.
Moreover, I would be very surprised if the majority of their $8 billion annual profit came from client market making.
The incentive for users to sign up with them is to get access to "better" pricing for whatever commodity they pair the buy/sell orders for - but remember these are futures so its all betting, and so the algorithms don't really mean anything.
Isn’t it actually the opposite? they pay for order flow instead? They should be making money from bid-ask spread, not fees.
They pay fees to exchanges.
As a market maker, some rebates are given back conditional on their activity.
They have no users.
You’re just constantly obliviously asserting falsehoods that betray an almost comical lack of understanding of the reality of these businesses.
“client market making”. That’s very different from “market making”, you two are not in agreement at all here
All your posts here are low-information anti-finance rants.