High frequency trading and proprietary trading have received quite a bit of media coverage as of late between the recent unexplained market plunge and of course the mortgage meltdown. Not to mention, there is a cloud of looming regulation over the industry. The senate passed a bill on Thursday that among other things aims to limit proprietary trading in banks and create more transparency in derivatives trading. Despite all of this, there’s a ton of innovation going on in trading from technology startups. For this week’s post let’s take a look at two companies in the space:
First up, a startup with a rather unique model in foreign exchange (FX) trading. The company is called Currensee and is a social network for FX traders. No new funding announcement, but the company recently announced its one millionth trade and claims approximately 5,000 registered members with 100 platform supported brokers. Total trading volume has reached more than $30 billion. That’s quite impressive for a company that launched only 6 months ago, but those who know the FX market know that it is an extremely large, fast-growing market with daily volumes pegged between $3 and 4 trillion and is fiercely competitive (disclosure: my firm has two investments in FX).
So what is a social network for traders? According to the company’s website, the platform allows “like-minded traders to connect with each other and share unique ideas, insights and data based on the actual trading activity of the community. Traders can collaborate using live trade data and can share trades and positions with their trading friends in real-time.” In terms revenue model, I read somewhere that the company charges for subscription services for advanced analytics, generates revenue from introducing broker relationships and transaction fees from its marketplace.
Currensee has raised a total of $12.8M from North Bridge Venture Partners, Egan Managed Capital and Vernon & Park. StockTwits is another company in the space that’s gaining traction. If you believe in the convergence of the real-time web and retail investing these are two startups to keep an eye on.
Switching gears to the world of low latency trading, startup Redline Trading recently raised $7.45M from five undisclosed investors. Generally speaking, Redline provides low latency market data solutions for trading applications. The company’s platform is called InRush. According to the company’s website, “InRush is an accelerated ticker plant that simultaneously manages user-supplied, direct-connected equity, futures, and option exchange feeds.” In the world of high speed trading every millisecond you are behind the competition could cost millions — the actual value of a millisecond has been debated, but it highly depends on your investment strategy. Market data volumes are increasing fast and not showing signs of slowing down any time soon. Liquidity is fragmented. Not to mention, supporting high speed trading usually requires significant hardware and support expenditures. These factors bode well for startups in the space. At the same time, the space is not without its challenges including possible future margin compression and differentiation. There is no lack of competition either. For example, earlier this year ACTIV Financial closed a $25M round from Bessemer Venture Partners. A few other players include Thomson Reuters, NYSE (Wombat), Interactive Data and Exegy.
While there is a high degree of regulatory uncertainty surrounding the space, one thing is for sure and that’s high speed trading is here to stay.
That’s it for this week. I welcome any comments and suggestions.