stock trading

Amsterdam's Flash Boys

Flow Traders Amsterdam November 2015 Fotos: Eljee Bergwerff für WirtschaftsWoche to be used only one time Bei Weiterverwendung Honorar mit Eljee Bergwerff VORHER!! absprechen!
Flow Traders in the Netherlands, a firm which provides liquidity for markets.
  • Why it matters

    Why it matters

    High frequency trading uses algorithms and technology to trade securities at top speeds and is believed by some to need greater regulation.

  • Facts


    • Flow Traders trades ETPs along with financial instruments in different asset classes including stocks, government and corporate bonds.
    • In 2014, the firm’s overall trade volume was equivalent to 2.5 times the Netherlands’ gross domestic product.
    • The global ETP market value grew by 44 percent. In the same period, Flow Traders increased its net trading income by 76 percent to €304.7 million.
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“Gosh, that was so close!” Gijs le Poole pushes his chair backwards and strokes through his non-existent hair. “Nothing I can do about that. We weren’t aggressive enough.“

It is June 6, 2016, 11:47 am. A German bank wanted to buy 90,000 ETFs – exchange traded funds – worth €3.9 million. Another market maker offered a better price and scooped the deal.

Here, the price difference is one cent but sometimes it’s two or three. But thanks to its high number of transactions, Dutch high-frequency trading firm Flow Traders makes a lot of money, its systems running a daily average of 120,000 trades. On a normal day, Flow Traders makes €1 million of trading income. In 2014, the firm’s overall trade volume was equivalent to 2.5 times the Netherlands’ gross domestic product.

Gijs le Poole, 28, is a junior trader who joined Flow Traders’ staff of 270 one year ago. He is responsible for monitoring all transactions of products that are based on U.S. indexes such as the S&P 500.

The company, listed in Amsterdam, is Europe’s biggest trader of Exchange Traded Products, mostly ETFs, exchange-traded funds which are traded on stock exchanges like stocks. An ETF emulates the value of an index, whether it is the DAX or the gold price.

Work starts early.

Flash trading by WirtschaftsWoche at FLow Traders
Keeping it flowing at Flow Traders: here, Christian Oetterich, a German trader who remembers the excitement he felt when he visited first for his job interview. Source: WirtschaftsWoche


7:28 a.m. Gijs opens the glass entrance door of the Amsterdam office. He walks through the deserted reception desk, empty offices and meeting rooms to the café, helps himself to a coffee from one of three big machines and a bottle of coconut water from the huge refrigerator. And a sandwich. Clad in sneakers, jeans and a thick red hoodie, he passes an office lined with desks and monitors. A high five for his colleague Dennis then he logs in and looks at what’s coming up.

8:13 am. Gijs heads back to the café, where colleagues are streaming in. They gather round a counter. At 8:15 sharp, chief analyst Joost van der Mandele describes the key things that could influence the market that day. There’s a news update, too, an IT colleague explains.

8:24 a.m. Gijs opens his inbox and pulls out a list of ETPs that are to be traded today. He checks the prices are competitive and adapts them if necessary, using the information from the morning briefing, to figure out his trading strategy. He writes a formula and inserts it into the algorithm. Some prices are easy to calculate, such as the DAX ETF, where index base values are always tradable. It’s harder with products from emerging markets where the prices of the underlyings aren’t always available so he has to rely on experiential values to come up with a price.

It’s an important part of the day. Europe’s stock markets open at 9 a.m. and starting out with the right prices can determine the day’s success. Getting it wrong can lead to losses, he says. If prices are too low, other market makers buy from him; if they’re too high, they sell to him at a higher price.

9:17 a.m. The noise level has increased significantly. Approximately 80 traders and analysts are shouting information to each other across the room. In between, they joke and laugh, but there’s no stopping the ringing, belling, honking and hooting sounds.

Each trader has set up their own alarms, each with a different meaning. The honk of an old car horn informs Gijs about a buy or sale, and a “whoop” represents the corresponding hedge. “You really have to be fast and anticipate which events could influence the prices,” he comments. He keeps an eye on at least eight monitors at a time, watching all of the ETPs that he has on the market as well as the transactions underway which are chiefly managed by software.

“Here, an investor is buying 1,200 S&P ETFs right now,” says Gijs, pointing at a red line item for the sale. “And here, we hedge our purchase with the share mix that represents the S&P 500 value at the moment,” he says, pointing to the green line item with the countertrade.

ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

Gijs monitors such buys and sales throughout the day. If he sees that he is not closing a deal but losing out to another market maker, he has to work out why and readjust his strategy, then adjust the algorithm with new information. Afterwards, the computer takes over again. Columns and line items full of numbers dart across the monitor.

If he spots a pattern where the market reacts in the same manner to a certain situation repeatedly, Gijs passes on this information to the software development department who provide a new algorithm to be a microsecond faster next time.

11:24 a.m. “Soup, anyone?” A colleague passes through with a tray. Gijs reaches out and grabs a bowl, thanks his coworker then slurps his soup as he checks the monitors and aligns with his colleagues. There’s no shortage of food: Someone is always passing with coffee, water or snacks.

Junior traders like Gijs earn €45,000 fixed income per year, plus additional bonuses paid for the overall performance of the company and for ideas that improve the efficiency and performance of Flow Traders. There are no individual or team bonuses.

Flash trading by WirtschaftsWoche at FLow Traders 5
Dedicated to managing risk, one-third of Flow Traders’ staff focuses on containing IT and market risk. Source: WirtschaftsWoche


Many people compare market traders’ work with Google. An information provider and someone searching for information would have to make huge efforts to find each other without search engines. As a global platform between trading places, Flow Traders ensures buyers and sellers find each other and the markets remain liquid and stable. Flow Traders does not have any customers and trades only with its own capital. The firm gives buy and sell offers to the market to anyone who wants to trade with Flow Traders.

Flow Traders enters the market with bid and offer at the same time. The prices are calculated by algorithms directly at the stock exchanges, based on the latest share prices. In order to do so, the data centers on site at the trading places exchange the data via servers and fast fiberglass cables with other data centers at other stock exchanges within nanoseconds.

Between bid and offer lies the spread: The difference between buy and sales price. The market maker adds its transactional costs to it and the result is a margin of a couple of cents. If an ETP has a value of €100, then Gijs bids €99.98 and asks €100.02. Spread: four cents. The margin lies in comparison to the value of €100: two cents. That is part one of the transaction. In order to stay market neutral and minimize risk, the market maker always balances its portfolio on debit and credit side immediately.

Flow Traders also trades off-exchange. It’s a smaller part of the firm’s turnover but hundreds of requests come in every day.

They land on the desk of Christian Oetterich, a German trader who has worked at the firm for six years and is now its co-head of institutional trading in Europe. He came to the firm after working for Hypovereinsbank’s investment department, wanting to get away from the daily routine. He still remembers the excitement he felt when he first came to the firm for his interview. “This is the Google of the financial world. I have to work here!”

12:03 p,m. A new request pops up in Christian’s RFQ system, a request for a quote, meaning someone has offered a bid and asked for ETPs. The platform connects institutional investors and market maker and the one offering the best price closes the deal. The traders also use a second channel, Bloomberg chat.

Christian reaches for the phone and calls the trader who knows the business. “Do you trade the RUSL in Germany? 15,800 items. Yes?” The RUSL is a Russian index fund containing shares of companies that are listed on Russian stock markets. Christian enters the price the trader gave him into the system and after 45 seconds, the sales confirmation comes in. Flow Traders has come out on top by offering the best purchase price. “Okay, I buy for €244,426. Going online in ten seconds,” Christian tells the trader.

Christian divides his time between the monitors and travel, seeking new business partners: Big banks, insurers, wealth managers or family offices that trade big volumes. Potential customers need to put in at least $250,000. Today, he’s heading to a meeting in Luxemburg for acquisition talks.

12:14 p.m. Stef Smets, one of four heads of trading, is working out with colleagues how to hedge an Asian ETF they just sold to minimize the risk for Flow Traders. The product has no direct underlyings, which happens a lot on Asian markets. Chinese shares, for example, are often withdrawn from trading to stabilize the markets. They need a different solution and they need to work it out, it’s a problem that can’t be cracked by the software. “We could buy Australian and Singapore dollars,” says one trader. “The Australian Index Future and the Hang Seng future would also work.” They agree on a mix to reproduce exactly the same value. The information is entered into the system, a second later the hedge is booked and the portfolio is market neutral again.

Stef coordinates across time zones to make sure Flow Traders’ offices in Singapore, Amsterdam and New York work as well as possible together. He spends a lot of time on the phone and moving between desks in the office, passing on information that might be relevant for pricing, for example.


Flash trading by WirtschaftsWoche at FLow Traders several people3
Some writers have criticized high speed trading, and events like the flash crash in May 2010, triggered by a London trader, caused negative publicity. Flow Traders works to keep the market liquid, with a stabilizing effect. Source: WirtschaftsWoche


12:32 p.m. “Time for lunch,” says Stef. Unlike the traders, who eat at their desks, people like him and Christian have time to go to the company’s restaurant. There’s a buffet stocked with salad, nuts, fruit and all conceivable superfood. They talk trips, not business. “Last year, we went to drive Formula 3 cars,” Stef recalls an adventure in the United States; Christian fires back with details of a “Flow trip” to Iceland for a weekend.

1:26 p.m. Thomas Wolff, Head of Global IT is on the phone with the inhouse server expert. For work, he is often flying round the globe to check the 1,389 servers that are installed directly at stock exchanges. There is an issue with a server in London, a part has to be exchanged as soon as possible. In the meantime, data traffic is redirected to a backup server. All servers are secured twice or even threefold. A complete loss of data would not only be a major problem internally, but would also contravene compliance policies. “Regulations have been tightened to prevent events like a flash crash due to a software glitch,” Thomas says. He approves the request which is forwarded to co-chief executive Sjoerd Rietberg for final confirmation. That’s all set two minutes later and the problem should be solved by the next day.

Next, an employee shows him a construction using cables that could make data transmission faster. He suggests trying it in the test environment. “We tinker with our own hardware. That way, we often find better solutions than what’s on the market,” says Thomas. His department is responsible for keeping all systems, software and the hardware running.

Flow Traders invests €26 million per year into IT: €6 million for hardware and €20 million for network connections and data centers. Flow Traders also has a department for software development with 35 engineers who improve inhouse trading programs.

4:36 p.m. “Ploing.” The sound alerts Rogier Galesloot, risk manager at Flow Traders that a limit volume has been exceeded. He clicks on the notification and reads that a trader has exceeded the volume trading limit of a German ETF, traded in Frankfurt. Two million items were allowed for this product but the order is for 2.6 million. The phone rings and the trader explains to Rogier that this is a very important institutional counterparty. Rogier opens the Bloomberg database and checks the liquidity of the product, the market situation and the solvency of the business partner. “Okay, I’m suspending the limit in this case.” Rogier clicks “approve.” Sometimes, making this decision can be stressful, he says. “You have to be fast and keep the risk for Flow Traders within reason.”

Today is a quiet day, the markets are running normally. Unlike days such as July 8, 2015, when the market in China crashed. “Then it gets really turbulent here.” The more movement in the market, the more trade volume, the more transactions and possibilities to make money. “The hedging becomes more difficult and it can come to short-term deviations,” says Rogier. The company is exposed to higher financial risk that needs to be balanced as quickly as possible. A monitor shows the up-to-date overview per trading desk. As long as the lines run in parallel, the hedging is perfect, unlike that day last July when some shares were withdrawn from trading, meaning they weren’t available for hedging anymore. “But that only happens two to three times per year.”

Even in situations like that, Flow Traders continues to trade. “We hardly pull back and almost always provide liquidity,” Rogier says. An exception could be if a data line is damaged, as once happened during an earthquake in the Indian Ocean.

5:30 p.m. Exchanges close in Europe – only the U.S. office is still open. Traders give each other high fives, and someone comes through with a round of beers. They toast the day and some plan a game of pool in the restaurant, while others go to the gym. Weightlifting or boxing.


Vera Münch is a journalist writing for WirtschaftsWoche, a German news weekly and sister publication to Handelsblatt Global Edition. To contact the author: 

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