We all know the images of the trading floor from the 1980s: notes flying around. Men in suits run frantically through each other. They gesture excitedly and shout numbers and codes around the room. All this, of course, only in proper style with the telephone receiver between the red ear and thick shoulder pads. But this picture has changed radically in the last 30 years. Today, almost all decisive trades take place inside powerful computer networks, without a human interfering at all.
This business model always works
Flesh-and-blood brokers are now hardly needed to match buyers and sellers of securities. This is done by computers, the so-called matching engines. Buyers and sellers simply enter their offers and the calculators then match the two.
And it is precisely this high-tech service that is of great importance – regardless of whether the markets are currently undervalued or overvalued. Even and especially during the currently rather difficult stock market period, stock traders and market makers earn handsome profits. Because they are available to other market participants as reliable counterparties. It hardly matters whether there is an ETF boom or a geopolitical crisis. Unaffected by moods and fashion, they always provide the markets with the necessary liquidity. Even in phases where things go up and down, they can generate high sales with their business model.
For their owners, these financial service providers are veritable money machines. And luckily for us fools, some of them are even listed on the stock exchange. This means that we can also benefit from the stock market’s rollercoaster ride. Market makers can be a hedge for us, a hedge against market volatility.
A high frequency trader with dividends
The Dutch company was founded in 2005 by Jan van Kuijk and Roger Hodenius flow handlers (WKN: A14V70). The listing took place in July 2015. A high-frequency trader specializing in exchange-traded funds. Looking at the numbers, it is remarkable that the company shows highly fluctuating profits, but always works profitably in all stock market situations. Especially in turbulent times, Flow Traders can grow strongly. We see that very well during the corona pandemic. The profit margin is currently 15.9%.
Flow Traders earns its operating profit from the small differences in the buying and selling prices of securities. These are the so-called bid-ask spreads. However, this also makes Flow Traders an interesting consideration as a crash hedge. Because here the fluctuations are particularly large.
Flow Traders is not only interesting as a dividend stock
Flow Traders would like to pay out at least 50 percent of the profit. It also works. The dividend yield has leveled off at around 5.8% in recent years.
We are currently paying EUR 18.13 for the share (all data as of September 28, 2022). The price-to-earnings ratio is 9, the price-to-sales ratio is 1.2. In my opinion, it is a small price to pay for strong hedging in a crisis.
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Henning Lindhoff owns none of the shares mentioned. The Motley Fool does not own any of the stocks listed.