[Infowarrior] - Trading Pennies Into $7 Billion Drives High-Frequency's Cowboys

[Richard Forno]

Trading Pennies Into $7 Billion Drives High-Frequency's Cowboys

By Kambiz Foroohar - Oct 6, 2010 12:01 AM ET Wed Oct 06 04:01:00 GMT 2010


Richard Gorelick, chief executive officer and co-founder of RGM Advisors LLC, poses in the company's office in Austin, TX on Aug. 27, 2010. Photographer: Wyatt McSpadden/Bloomberg Markets via Bloomberg

A cowboy-hat-wearing robot with “Sell” emblazoned across its chest adorns a wall-length mural in the lounge of RGM Advisors LLC in Austin, Texas. Another robot, with “Buy” on it, wobbles toward a green Wall Street sign as two machines tote spark-emitting high-speed cables.

“We explained to a local artist that we wanted a mural that represented our business, and he came up with the design,” RGM Chief Executive Officer Richard Gorelick says in an airy 16th-floor office that calls to mind a Scandinavian design firm rather than a company that trades hundreds of millions of shares a day, Bloomberg Markets magazine reports in its November issue.

As a cue to RGM’s staff of 120 mainly scientists, software developers and information technology graduates that their job is to eke out a fraction of a cent profit on each of those trades, five stone urns in the lobby are stuffed with pennies.

“It’s a lot easier for us to teach really smart scientists about markets and trading than to teach traders about programming,” Gorelick, 39, says.

High-frequency firms such as Gorelick’s are the rebellious new force in U.S. securities markets. Armed with algorithms and computers that shave milliseconds off the speed of a trade, programmers, math whizzes and even some former dot commers like Gorelick have set up shop from Austin to Chicago to Red Bank, New Jersey. These firms don’t analyze a company’s value or bet on financial news. They use computers to scour public and private markets for deviations from historical prices and leap on discrepancies, rather than betting on the value of a company, currency or commodity.

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http://www.bloomberg.com/news/2010-10-06/trading-pennies-into-7-billion-profit-drives-high-frequency-s-new-cowboys.html