{"id":48392,"date":"2014-03-12T05:35:45","date_gmt":"2014-03-12T09:35:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=48392"},"modified":"2014-03-12T05:35:45","modified_gmt":"2014-03-12T09:35:45","slug":"investment-firm-smashes-record-notches-99-92-win-rate","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/03\/12\/investment-firm-smashes-record-notches-99-92-win-rate\/","title":{"rendered":"Investment Firm Smashes Record, Notches 99.92% Win Rate"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> \"Investment<\/p>\n

Prepare to be stupefied…<\/p>\n

Over the course of 1,238 trading days – from January 1, 2009 to December 31, 2013 – Virtu Financial had one <\/b><\/em>day in which it lost money. One!<\/p>\n

Let that sink in for a moment… 1,237 days of profits and only one day of losses.<\/p>\n

And we thought J.P. Morgan’s<\/strong> (JPM<\/a>) stretch of 365 days of trading without a loss was impressive?<\/p>\n

I assure you, this isn’t the stuff of Bernie Madoff. It’s not a statistical anomaly. It’s the stuff of high frequency trading (HFT). And it’s totally legit.<\/p>\n

Today, I want to share two ways you can get a piece of the action. So let’s get to it…<\/p>\n

Believe the Hype<\/strong><\/b><\/p>\n

On Monday, New York City-based Virtu Financial filed IPO plans<\/a> with the SEC to raise up to $100 million. Although no date has been set yet, it plans to list on the Nasdaq under the ticker VIRT.<\/p>\n

And it’s in the IPO prospectus where we find this mind-blowing chart, showing the company’s daily net trading income.<\/p>\n

\"\"
\nYou’ll note, there was only one day, during 2012, when the firm lost money. Every other day, Virtu pocketed anywhere from $500,000 to upwards of $5 million in profit.<\/p>\n

Such a hefty daily haul explains the $624 million in “trading income” the company reported last year, as well as the founder’s $114 million NYC mansion.<\/p>\n

So how does the company do it?<\/p>\n

Per the S-1: “We stand ready, at any time, to buy or sell a broad range of securities, and we generate revenue by buying and selling large volumes of securities and other financial instruments and earning small bid\/ask spreads.”<\/p>\n

To be clear, the company doesn’t speculate. Instead, its strategies are “designed to lock in returns through precise and nearly instantaneous hedging.”<\/p>\n

It simply provides liquidity, scalping pennies on billions of market orders, which clearly add up over time.<\/p>\n

Here’s the most shocking revelation in the S-1: “If our risk management system detects a trading strategy generating revenues outside of our preset limits, it will freeze, or ‘lockdown,’ that strategy and alert risk management personnel and management.”<\/p>\n

In other words, if the company is making too much money in a particular market, it shuts down trading, just to be safe. Don’t we all wish we had that problem?<\/p>\n

If You Can’t Beat ‘Em…<\/strong><\/b><\/p>\n

Virtu’s runaway success reveals something we’ve known for a long time: Markets aren’t even close to being efficient. If they were, Virtu couldn’t survive – let alone thrive.<\/p>\n

Despite what you’ve been told to the contrary, even the most liquid and widely traded securities aren’t efficient.<\/p>\n

Case in point: On March 3, the bid-ask spread on the SPDR S&P 500 ETF<\/strong> (SPY<\/a>) became inverted for 500 milliseconds, according to Cristian Zarcu of TradeDynamiX.<\/p>\n

That means the bid price was above the ask price for half a second. Not by a little bit, either. At one point, the spread reached as high as $0.09 ($184.24 versus $184.15).<\/p>\n

In a world where HFTs like Virtu can trade inefficiencies down to the millisecond, this represented a free lunch.<\/p>\n

And if this is going on in an ETF that sees the heaviest trading, rest assured, it’s going on elsewhere in the market, too.<\/p>\n

So how can we compete against the “can’t lose” profit machines that are HFTs? We have two options:<\/p>\n

We can either concede defeat and invest right alongside them by buying into Virtu’s IPO. (Yes, I’ll let you know when the stock begins trading.)<\/p>\n

Or we can go where HFTs can’t – micro caps.<\/p>\n

As my friend and fellow micro-cap specialist, Ian Cassel, points out, they represent the last inefficient<\/em> market cap class where individual investors like us hold a distinct advantage.<\/p>\n

How so? Well, Wall Street analysts routinely ignore micro caps. In fact, over 40% of companies with market caps of less than $300 million have no<\/em> analyst coverage. That allows us to uncover meaningful information first – before it’s reflected in share prices.<\/p>\n

\"\"
\nAt the same time, daily trading volume in micro caps is way too infrequent for HFTs to even bother.<\/p>\n

Bottom line: Although we can’t duplicate the exact trading successes of companies like Virtu, we can generate more than enough profits in micro caps to make it worthwhile.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

The post Investment Firm Smashes Record, Notches 99.92% Win Rate<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: Investment Firm Smashes Record, Notches 99.92% Win Rate<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com Prepare to be stupefied… Over the course of 1,238 trading days – from January 1, 2009 to December 31, 2013 – Virtu Financial had one day in which it lost money. One! Let that sink in for a moment… 1,237 days of profits and only one day of losses. And we thought J.P. … <\/p>\n

Continue reading “Investment Firm Smashes Record, Notches 99.92% Win Rate”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-48392","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/48392","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=48392"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/48392\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=48392"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=48392"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=48392"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}