Even After Recent Surge This High-Frequency Trader Still Shows Value

Virtu Financial has rallied immensely since the start of the coronavirus bear market as volatility has soared through the roof not just on a regular basis but daily and even intraday. This historic volatility is precisely what fuels Virtu, even years after its 2015 IPO still relatively unique as a public high-frequency trading company. While volatility likely will eventually settle down and Virtu's immediate trading income similarly nonetheless this pandemic-spurred volatility has provided Virtu both likely ample new assets from trading income and greater market knowledge of how it can operate in extreme volatility environments.


Data by YCharts

Trading Cowboys Eventually Fall Apart But Virtu Seems To Play It Cautious

Virtu Financial is, in some ways, what happens when you say you take a few scattered trading desks across the Wall Street banks and merge them into a large, nimble, concerted institution devoted purely to trading, market making, and the furtherance of its trading technique. Virtu, self-described in a recent 10-K filed with the SEC as a company that "leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to our clients," occupies, therefore, an unusual space in-between the market-making exchanges and the trading desks of major banks.

It is worth noting that Virtu Financial is still a fraction of the trading revenue of the major bulge brackets. In 2019, for example, Virtu Financial made $912.316 million in net trading income as compared to Goldman Sachs' $10.157 billion in market making. In Q4 2019 Virtu Financial pulled in $228.705 million in net trading income as compared to Goldman's $3.480 billion in net revenue in its marketing making and trading global markets segment.

Virtu reported that as of the end of 2019 it had $773 million in cash and equivalents and $1.957 billion in long-term debt. For a company, even after its recent rallying with a market capitalization of about $4.57 billion these are extremely liquid, green numbers. Then again it needs to keep such good numbers as since it primarily is in the business of trading and market-making for it to suddenly find itself in the red or significantly stressed means there is an issue with its very business model.

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Disclaimer: These are only my opinions and do not constitute investment advice.

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