[jbooth]

Ok, I hear your argument regarding capturing a larger part of the new value.. my sense is that they've gotten a lot better at capturing value and are providing very little additional value. I mean I don't live in the finance world, but in my world, the price of anything does not matter within less than a second ever. And it probably doesn't matter within a minute or an hour either. Commodities probably don't even matter within a week or so. No corporation purchasing a large amount of commodities can turn around a decision in under a week, so who cares if they have subsecond pricing accuracy?

Then I talk to friends who work in finance and I see that insane amounts of resources are being thrown into this stuff. Like, truly insane, you're in this industry, you've probably seen it.

Apple makes an iPad, they get money, consumers get iPads.

Goldman makes a subsecond trading system, they get money, consumers get... ???? If consumers and non-financial businesses don't care about the price of AAPL stock within a second or a minute, then how come Goldman makes so much money creating that price stability? What is broken here? It seems like a tail wagging the dog scenario to me.

[yummyfajitas]

Goldman makes a subsecond trading system, they get money, consumers get... ???

Smaller bid/ask spreads, greater liquidity.

Of course, HFT is just a high tech sideshow to the rest of the market. It's not anywhere near as big as you think. Do some simple math - multiply daily share volumes (here is NASDAQ http://www.nasdaqtrader.com/Trader.aspx?id=DailyMarketSummar... ) by the fraction of trades done by HFT (estimates range from 25%-75%) and multiply that by a typical profit of a tenth of a cent. You don't get a huge number.

[jbooth]

Well, we've been through this before.. but I still don't understand, who cares about smaller bid/ask spreads for their own sake? Say HFT was unilaterally banned (which would be ridiculous and excessive), and now bid/ask spreads will naturally spread apart for maybe MINUTES at a time before someone notices and arbs the difference.. how are we worse off?

My major beef here isn't people making money for doing stuff I think is useless.. I think Us Weekly and People Magazine are useless but I don't begrudge the editors their paychecks. My beef is how much talent is being sucked up into a game that doesn't seem to provide any outside benefit. If all of those people were building actual products and services that people paid for (as opposed to basically hacking the finance system for profit), I feel like the nation and world would be a lot better off for it. In short, I think it's a market failure that they can make so much money without actually creating anything.

[yummyfajitas]

Assuming that by "HFT", you actually mean all sorts of algorithmic trading, we are worse off because we have humans doing the work of a computer. If all computerized trading were slowed down by a constant factor of 1000, the world would never notice and HFTs wouldn't care.

I agree with you on wasting talent winning a race rather than creating new value: http://news.ycombinator.com/item?id=2093334

But I don't agree with you that the majority of the finance industry falls into that category. Most trading is not a race. HFT is not representative of the financial sector. The entire HFT sector is only about $20B, which is a little more than double Goldman's profits last year.