[egiva]

No, I think HFT is a natural progression. HFT was popular among Hedge Funds at least starting in 2004. An acquaintance who ended up working as a tech-related VP at a smaller fund would tell me that the number one problem they had was mitigating (spending or finding an outlet for) the massive amounts of money they generated on around $30 billion of daily trading (buys+sells). Honestly, hyper liquidity has its problems too when you generate too much excess cash and can't spend it due to tax implications, so they would invest massive amounts of capital in their servers (buying the best), in their software (hiring the best programmers), etc. In that hyper-liquid cash-rich work environment, it seems to me that investing in your infrastructure (enabling HFT) was a natural progression. Where else do you spend the money? PS - wish I had these problems too! (I don't) haha

[deathflute]

Sorry, that doesn't make sense. HFT is actually not at all capital intensive compared to some other strategies that hedge funds run. The whole point of HFT is to produce high sharpe returns on a small capital base. These strategies do not scale.

[jayruy]

I think you're saying the same thing, but I agree deathflute has stated the problem more clearly from a business perspective: the strategies do not scale, yet they need to reinvest proceeds into the business to remain competitive. the result is more technology to execute the same strategies faster, rather than mitigating risk by diversifying into new strategies. this is why people call HFT an arms race.

[egiva]

Exactly - thank you for clarifying my original post - I agree it was poorly presented, but I do think we were both elaborating the same point. HFT IS an arms race as you point out, and the details I find interesting have to do with infrastructure changes - i.e. relocating server farms to Siberia to gain a few fractions of a second in transmission time, etc.