The fastest traders on Wall Street are in trouble

High-frequency traders, the Wall Streeters made famous by Michael Lewis' Flash Boys, use their technology to get to trades ahead of the competition. For years, this strategy raked in billions. But low volatility and rising operational costs have squeezed HFTs, precipitating a wave of consolidation and closures.

Total revenues brought in by HFTs from equity trading have dropped over 85% from $7.2 billion in 2009 to $1.1 billion in 2016, according to data from the TABB Group. The consultancy expects revenues to slide to $900 million this year.

But many HFTs are looking forward and revamping their business models to grow despite this environment.

"We remain confident that the core results are a consequence of the terrible environment for a market-maker," "While we are not happy with the results, we are proactively managing our business to grow and to continue to earn an acceptable return in this environment."

High-frequency traders have seen revenues decline for years, but the historically low volatility of the past year has led to a breaking point.

Here's Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co, a Milwaukee-based firm (emphasis is our own):

Volatility is cyclical and so this calm environment will not persist indefinitely. But even if volatility returns to normal levels, the industry won't see the revenues it did three or four years ago, according to

"We could probably get to $1 billion or $1.5 billion," Tabb told Business Insider."But not $2 billion or $3 billion."

Volatility is just part of the equation

Low volatility is just one issue facing HFTs, according to Don Ross, CEO of PDQ Enterprises, the parent company of CODA Markets equity trading platform.

"Low volatility is compounding an issue high-frequency traders have been facing for years: rising exchange costs

This spike in costs has angered a lot of folks in the industry, according to reporting by Business Insider's Matt Turner. "[High costs are] the new normal," Tabb said.

Whats next?

HFTs can't rely on speed any longer. In order to adapt to the new environment, they'll have to shift the focus of their technology, according to Gaurav Chakravorty, the CEO of qplum, from speed to making predictions. firm recently released a report on innovation in trading. He said high-frequency trading firms are "picking up pennies in front of a bulldozer."

Deep learning tech allows computers to learn things without being programmed to do so. According to Chakravorty, HFTs can use deep learning tech to identify signals, such as when someone cancels an order, that can lead to money-making opportunities. Chakravorty said HFTs are good at developing technology so making the shift wouldn't be difficult. But it will cost money, according to Goldman Sachs.

"Further, technological advances in the space will require continued investments to stay competitive," the bank said.

Mark Smith, the CEO of Symbiont, a blockchain technology company, told Business Insider he knows of HFTs that are looking to use their technology to tap into profit opportunities in the private markets.

"There are two HFTs I've talked to who are looking for undervalued assets in the private market," Smith said. "With fewer companies going public there are more opportunities there."

Joe Ciolli contributed reporting.