High-frequency trading is an unusual part of Wall Street where firms use supercharged computers to trade insanely fast, able to buy and sell millions of shares in a fraction of a second. The technology and tactics they use are impressive and also controversial, which is why some of the companies are reluctant to talk about what they do. A look inside reveals a culture that is quite different from that of the big banks and more like the casual environment favored by Silicon Valley.
The New York firm Tower Research Capital has a very Wall Street-sounding name, but its Tribeca office has no trace of the fancy marble and wood theme big banks tend to go for. It looks more like the world’s most well-decorated yoga studio, with all kinds of Asian statues and huge plants throughout the space. Like nearly everyone there, the boss is in jeans.
“I don’t think most people that wear suits are happy to wear suits. I mean on weekends, they don’t wear suits,” says Tower’s founder and managing director Mark Gorton.
He wears shorts when it’s warm and cycles to work. (He also puts a fair amount of his own money into advocacy work for bike lanes.) Gorton says visitors from traditional Wall Street firms tend to be “kind of jealous” of the casual environment his staff works in.
Unlike a bank, employees don’t have to meet clients, so business attire is pointless. But the relaxed dress code is more about the employees Gorton needs to win over. He’s not looking for traditional bankers and traders. He hires mostly engineers and scientists.
“The market that we’re in is really competing for programmers, which is a very, very competitive market,” Gorton explains. “We’re competing against Google, who has very nice offices and lots of food.”
His office doesn’t have its own chefs, as Google does, but Tower employees can order in on the company. And they take advantage. At lunchtime, the receptionist turns traffic cop, efficiently steering steady waves of delivery workers to drop off their plastic-bagged bounties in neat rows on a table. She messages employees when their nourishment arrives. There are also several kitchens, equipped with an impressive array of snacks and drinks, enough to satisfy a whole dorm’s worth of stoners.
High-frequency traders largely see their work as tech first and finance second, so they shower their workers with Silicon Valley-style perks. They need to build an environment that will attract young recruits like Eddy Ferreira, who studied computer science at Princeton. That campus is a storied hunting ground for Wall Street’s biggest banks. But Ferreira wanted a different environment and more challenging work.
“I really don’t see myself working at that new grad analyst job, signing your life away for a couple years, basically doing work that, some would call it menial. At best, it’s repetitive,” he says.
Ferreira is a trader at Tower, but there’s no trading floor like you may imagine. There isn’t even that staple of Wall Street workspaces, a television locked on CNBC. It’s too slow. Trades are made by computers in the blink of an eye, launched by algorithms Ferreira and his colleagues create beforehand. Their programs may net only fractions of a penny on an individual share. But with their turbocharged computers trading at enormous volume, it adds up.
Global Trading Systems is another speed trading firm with offices in New York. CEO Ari Rubenstein once screamed his trades in a hectic commodities pit. His tranquil midtown office is worlds away. There’s no sense walking around the relatively quiet office that hundreds of thousands or millions of trades are happening at any moment because of code the casually-dressed staffers write.
“We’ll probably trade 3.5 percent in the U.S. cash equity markets by the end of the day. To trade that percentage of the market, 20 years ago you would need a whole building full of people and there would be paperwork,” Rubenstein remarks as he points to a small office. “Now there’s four guys here and they build technologies that can handle all of the back office in an automated fashion.”
Like Tower, Rubenstein’s firm has a well-stocked kitchen. He’s especially proud of the company’s gleaming coffee machines and marvels at the amount of caffeine his employees put away. Staffers on break can blast away at the full-size video games in the company game room, which also has a bachelor pad-style couch and foosball table. GTS hires have backgrounds in seemingly everything but finance, from physics to engineering to math.
“My parents were like, ‘well, you’re gonna have to buy a suit and go to work,’” explains t-shirt clad senior developer Jeff Knecht, who previously worked on video games and had no plans to work on Wall Street. “But here it’s great. I would have never thought something like this existed.”
High-frequency trading firms like these may be small and casual compared to giant banks. But all the rapid-fire trades churning through their servers make them a force. They accounted for about half of all U.S. stock trading last year, according to TABB Group. That’s a worrying number to speed trading’s critics, who don’t see the battle to make trades happen a few microseconds faster as good for the markets.
“It’s this arms race going on where there’s no benefit,” says Eric Hunsader, founder of market data firm Nanex and one of speed trading’s harshest and most colorful critics. “It’s like a million paper cuts. Everybody’s paying just a little bit more for buying and selling.”
He and others believe that high-frequency trading is ultimately bad for the financial system and regular investors. To get a sense of his critique, imagine the managers of a mutual fund in your 401(k) want to buy a large block of shares. If a high-frequency trader anticipates this move and gets to the stocks faster, it can charge the mutual fund a bit more. That money ultimately comes out of the retirement savings of regular Americans.
High-frequency traders don’t buy this argument. Gorton and others point to a general trend of lower trading costs.
“Markets are getting squeezed to these kind of ultra levels of efficiency, which really should make everybody pretty happy,” Gorton says.
That’s another way speed traders sound like tech execs. It’s a bit like the types of responses Google and Facebook often give about privacy: don’t be afraid; if you were as smart as us, you’d understand we’re actually making life better.
As far as the big financial firms that manage much of America’s retirement money, they don’t agree on whether high-frequency trading is good or bad overall. Like any technology, it could help, but could also cause problems.
And it’s changing all the time, so quickly that high-frequency traders themselves worry about someone smarter and faster taking them out.
“This is not the sort of business I could bequeath to my kids,” Gorton says. “At some point along the way we’re gonna miss some turn in technology and all the good work we’ve done will not be enough.”
But for now, his firm and other high-speed traders are a reality and an oddity in finance, where high-tech reigns and old Wall Street seems far, far away.