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High Frequency Trading Has a New Star

Bank of America has become the “it” stock of high frequency trading.

A Bank of America trader inside the NYSE.
Oliver Quillia for CNBC.com
A Bank of America trader inside the NYSE.

Citigroup was the former favorite stock of this trading strategy before its reverse split in May 2011, and at that time there was speculation about which stock would take its place.

Wonder no more, say traders. “Bank of America has replaced Citigroup as the darling of the high frequency crowd,” says Steve Sosnick, Timber Hill Equity Risk Manager. “It’s got all of the characteristics, low price and lots of liquidity.” And of course, a big float—over ten billion shares are available for trading.

Tim Biggam, Trading Block Strategist agrees. “Bank of America volume has picked up”, he says. Traders target the stock he says looking for “rebates for providing liquidity”. The rebates he is referring to are fractions of cents paid by exchanges to traders that do volume. And traders like Bank of America because it is a relatively high quality name with a single-digit handle. That combination translates to a higher percentage return on trading capital.

Direct Edge and BATS are two exchanges where Bank of America is often on top of the "most actives" list. According to Joe Saluzzi, co-head of trading at Themis Trading, the reason is clear: “aggressive” rebates. But Saluzzi also makes a clear distinction between high volume and real liquidity.

With nearly two hundred eighty million shares changing hands on a daily basis, investors may take comfort from the perception that Bank of America is a very liquid stock. And usually, it is he says, “…until they decide to walk away.”

The “they” of course, are the high frequency traders.

And despite BAC being called the “darling” and also, the “poster boy” for high frequency tradersby one market watcher, it does lack one key quality those traders most desire: low volatility.

Shares of Bank of America have lost over fifty-percent year-to-date with the potential for more news-driven market moving events on the horizon. Which leaves the door open a crack for future contenders of the somewhat dubious distinction, stock "darling" of the high frequency trading crowd.

Follow Lori Spechler on Twitter: @lorispechler

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