[Marazan]

They cannot add liquidity. They HFT can only make money when there are slower traders willing to buy and sell.

Thus, by definition the liquidity already has to exist (market participants wanting to buy and sell) for HFT's to profit.

[tptacek]

Look at a market without market-makers. Housing is a good one. Houses sell only when there are "slow" traders willing to buy and sell. Have you ever bought or sold a house? Would you like the financial markets to be more like real estate?

[Frondo]

The alternative to HFT is not the real estate market.

The alternative to HFT is how the markets operated for decades prior to HFT companies vacuuming money out of the system--that is, quite well, and with adequate liquidity, and with lots of money still being made.

[tptacek]

The markets in the decades before HFT were crooked like a bucket of fish hooks! They were NOTORIOUSLY corrupt. Everyone was scamming everyone else. The entire market was a giant grift. Are you really sticking up for 1980s trading? Or have you just not done much research about how it worked?

[Frondo]

Really? And now, with HFT, they're no longer crooked? If I remember right, in the 2000s we've seen a ton of crooked market scandals (fraudulently rated securities, LIBOR, etc etc). I don't see this relationship you're positing between HFTs and a non-corrupt trading market at all.

[tptacek]

That's an illogical response.

[Frondo]

You said: prior to HFTs the markets were corrupt, the entire market was a giant grift.

You implied that, without HFT companies, we'd be right back there, though I see now that you didn't explicitly say exactly that.

[Marazan]

You seem to be accepting the premise that HFT algorithms a e acting as market makers.

I reject that premise. HFT algos are majoritarily run in markets with deep liquidity.

[auntienomen]

Markets with lots of market-makers have more liquidity! Film at 11!

[tptacek]

So do most market-making firms.

[toomuchtodo]

I believe the question is: could the same market-making/liquidity be provided without the amount of profit being taken by HFT firms?

[vasilipupkin]

this is incorrect. HFT can make money adding liquidity to a market that erroneously is lacking in liquidity ( mispricing )