[deltateam]

it is right at the intersection of things you are more familiar with in tech:

aggregating user data and selling it.

people with dis-equal access to service and collecting everyone else's orders midstream and selling it:

the machine two racks away from the matching engine is selling information to the machine one rack away from the matching engine

and this goes all the way out to your broker, your etrade or robinhood who is selling all of your profile and trade data to the machine two racks away from the matching engine

it adds a lot of value for a lot of people. the actual femtosecond trade isn't what anybody cares about.

regarding the equality, it wasn't that long ago where you had dis-equal access if you couldn't physically be at the stock exchange, in fact thats where you were supposed to be if you wanted to trade. so I can't buy that argument, in isolation.

I do think it is a form of front-running, which is regulated in some capacity but very specifically worded such that your broker can't place a trade before you just because they found out you wanted to. what we have here is front-running but from different unrelated companies in the chain and all automated by machine.

[ggm]

Yes, good analysis. Whats the goodput (the net social benefit) and whats the badput?

Do I (for instance) pay more? I suspect I do. I suspect the intermediary sniping in, forces prices up to their advantage. The dis-equality is being abused, to extract rent from me because I am slow. HURRY UP! Bidness waiting.

Which means, overall, we all pay more. This is cost shifting to make money, by snatching goods in flight, and charging a minim to pass them on. The intermediary has no intention of doing anything except profiting. they aren't holding, they aren't helping.

I'm not a free market person btw. So, I'd probably say that about a lot of behaviour in 'the market'

[vostok]

I suspect that I (as an individual investor in my retirement account and personal investments, not as an HFT) pay less.

My mental model is that pre-HFT, banks and other market makers made a lot more money per share traded. HFT outcompeted them and the HFTs make less money per share. I, as an individual investor, get to keep more of my money and less of it goes to various intermediaries.

[deltateam]

"goodput"

-you pay less for an order -it takes less time for your order to get filled -more efficient pricing -liquidity ripples out into risk management products derived from thick order books -easier to manage risk -lower cost of transaction

"badput"

-hard to compete against the liquidity providers -they have unparalleled view of order flow, which runs counter to a market with fair equal access to information

[Dylan16807]

You forgot to mention the part where they're getting paid to provide this liquidity.

So prices are some pennies more efficient, but some of the trading money is going to the pockets of high frequency traders.

This is good! To a point. Eventually the price tag of improved liquidity could be higher than the value of that liquidity.