[gpsx]

I'm not an economics or finance expert, so I may not have a very extensive view of this, but I think there is a meaning to the expression of providing value. If a product has more value to a person than the price of the product, assuming they have correct knowledge, that is the creation of value. In high frequency trading, or stock trading in general, people may be willing to pay more than the listed price, but I don't think value is created because this is generally due to incorrect knowledge. I think stocks are pretty much a zero sum game. If one person is making money, someone else is losing money.

As I mentioned, I'm not an economics or finance expert, so I'd be interested to hear what more experienced people would have to say.

[traK6Dcm]

HFT may not, but trading itself definitely provides positive value. People's utility function is not purely monetary over an infinite time horizon. Trading allows you to trade off price and risk over multiple time horizons.

For example, a trade where someone needs to convert his assets into cash due to a family emergency benefits both sides. The person with the emergency takes liquidity from the market and pays a premium because the trade is time-sensitive - he needs cash the next day. Other liquidity traders may profit from such "uninformed" flow in the long term, but both parties are happy because they got what they want.

Another example is trading off risk and hedging against certain changes in the world that would affect you.

[nv-vn]

I disagree. Trading may seem zero sum on a short timescale, but over the long term markets (empirically) trend upwards. Thus, simply being invested in diverse indices should yield some positive return in the long run. This makes sense as long as we assume GDP growth over time, which is an assumption that has kinda been baked into government/economics to my understanding.

At a short time scale, yes there tends to be a winner and a loser, but even then it's not so clear cut. Most of the trades happening at a short time scale are institutional rather than retail (i.e. people who have the risk tolerance for this type of trading & who have profited enough from it to keep doing this type of behavior). The activity of most HFT firms is some combination of market making & arbitrage, where the profit can be thought of as a fee for trading for other participants (e.g. Robinhood doesn't charge commission but sells order flow, which tends to be cheaper than commission per trade). In general, price improvement is also possible since these make markets more efficient, so as an example it would not be unusual to see firm A sell to firm B who sells to firm C, where both A & B see a profit from their sales. This is possible because prices across markets are not automatically synced, so A has access to a better price than B who has access to a better price than C. And because institutional trading dwarfs any kind of retail trading, the trades can appear high frequency from the perspective of the HFT firm while only occurring, say, once every six months from the perspective of the retail trader.

[gpsx]

Regarding the short term versus long term, I agree with you here. I meant to differentiate between getting profit by investing, which certainly has a lot of value and is the whole point of capital markets, and from getting profit from fluctuations in the current price not tied to an inherent value of the company, which is where I think you have the winner and loser, even if the trades involve multiple parties. Clearly this is what is being done in high frequency trading.

I can buy the idea of high frequnecy trading serving as market making even if it is not something I can fully appreciate. But it still seems like these high frequency traders (and others invovled in investing based on fluctations) are mainly skimming money from the market without providing value.