| You may be confusing HFT with algorithmic trading in general. You also disregard my whole point about just how high the HF in HFT needs to be. One can easily imagine a market that operates in rounds of blind auctions, one auction per second or one per minute or something along those lines. This would take out a lot of the arms race, and it's implausible that spreads would be much higher in such a market in a way that would hurt other investors: after all, you'd still expect competition between participants in a way that drives their profits down. > A big part of the reason why there's been an almost universal reduction in fund management fees, saving retirement savers an enormous amount of money over the last 10 years or so is this reduction in spreads. That makes zero sense. A significant loss due to higher spreads wouldn't show up in fund management fees, it would just show up as lower returns of the fund before management fees. > If anything, HFT is more productive per unit of labor, relative to other sectors of society - that's why the compensation is so high! That's at least doubtful. I would argue that compensation in HFT is high because it sits adjacent to large streams of money. In practice, a lot of compensation is ultimately about siphoning small fractions away from the streams of money you're near to, and the size of that stream makes more of a difference than almost anything else, but that's really only a form and function of power -- it doesn't correlate with how productive you are to society. (I suppose if you just define productivity as compensation per hour worked, as economists often do, then what you say is strictly speaking true, but it's also kind of circular and therefore meaningless.) |