Although there seem to be more and more firms getting involved in high frequency trading these days, the big players in the market (i.e the Goldman Sachs & Credit Suisse’s of this world) remain the same. Having said that however, their share of the market does seem to be decreasing. The question is, does that mean there are growing opportunities for smaller firms to get into this market and compete?

At latest count, according to industry analysts, there are probably about 400 firms now engaged in high frequency trading (HFT). Amazingly, HFT activities now account for around 70% or total equity market volume in the US.

Many pundits are however wondering if those figures have topped out. Others are adamant that they are set to continue to grow. Like so many issues, the answer to the questions seems to depend on who you are asking.

Some industry spokespeople think that the market is now starting to become saturated with high-frequency traders. In the last year or so, there has been a whole raft of new high-frequency trading shops opening, but it seems that an equal number are just as quickly going out of business.

It’s a tough game. To compete with the big boys, you need expensive technology and incredibly complex computer algorithms. The big Wall Street firms have deep pockets. They can pay big bucks not just for the technology but also for the best brains in the business to come up with the engineering and the computer code behind that technology.

The opportunities for new firms who want a piece of the high frequency trading pie are thus limited (despite the fact that it is a very big pie).

Our advice to those looking to start a high frequency trading operation is this. Think long and hard about it and make sure you have good funding. Yes, it can be very profitable but to be successful you will have to compete at the highest levels and it won’t be cheap!