[nicoffeine]

Money corrupts. Wall Street money corrupts absolutely.

In a sane market, there would be no advantage to making an investment and then selling it a few milliseconds later. It introduces unnecessary volatility and incentivizes insider trading and other illegal activity[1]. It defeats the original purpose of the market: to make long term investments. It also leads to some unbelievable waste:

Traders’ need for speed has grown so voracious that two companies are currently building underwater cables (price tag: around $300 million each) across the Atlantic, in an attempt to join Wall Street and the London Stock Exchange by the shortest, fastest route possible. When completed in 2014, one of the cables is expected to shave five to six milliseconds off trans-Atlantic trades.[2]

The problem is that our 20% of our economy is "financial services". It's doubled in the last hundred years or so[3]. Technology isn't shrinking this sector because the people who own it also own lobbyists who own Congress. They write the rules so they can play stupid financial games, and then force the government to bail them out when the latest ponzi scheme hits maturity.

[1] https://www.zerohedge.com/article/first-hft-casualty-finra-f...

[2] https://www.motherjones.com/politics/2013/02/high-frequency-...

[3] https://www.washingtonpost.com/news/monkey-cage/wp/2016/03/2...

[nv-vn]

This is a really frustrating comment because it has so little to do with the real world of HFT.

>In a sane market, there would be no advantage to making an investment and then selling it a few milliseconds later.

And yet exchanges (NASDAQ, NYSE, CBOE, LSE, CME, Euronext, etc.) actually _PAY_ HFT firms to do this exact behavior since it provides actual, quantifiable benefit to the exchange and its customers.

>It introduces unnecessary volatility and incentivizes insider trading and other illegal activity[1].

The firm mentioned (Trillium) is not a player in HFT, they are a day trading proprietary trading firm where the firm basically gives individual traders (borrowed) money to use however they want. In this case, some of the traders decided to break the law because there is no real oversight at this kind of firm. When looking at reputable proprietary trading firms (i.e. the kind that don't just hire random people and give them money to play with) this type of behavior simply does not happen. I agree that these types of places are extremely scummy (and are probably responsible for a ton of insider trading crap & the like), but they are not representative of the HFT industry at all.

As for the comment on volatility, the idea behind HFT is actually to help reduce volatility. Outside of a few bugs (such as the Knight Capital debacle you mention) and the Global Financial Crisis, it seems like volatility is trending downwards in part due to HFT. In the same vein, liquidity has exploded thanks to HFT (which is why exchanges pay for HFT). It means that you no longer have to wait minutes or hours for your trades to execute and you can usually get the most up to date price very easily.

[nicoffeine]

> Outside of a few bugs (such as the Knight Capital debacle you mention) and the Global Financial Crisis

I don't know anyone who thought the Global Financial Crisis was a "bug." People went bankrupt, lost their retirement, lost their homes, lost their jobs. These are not small stakes.

> It means that you no longer have to wait minutes or hours for your trades to execute and you can usually get the most up to date price very easily.

Warren Buffet was able to build his empire before HFT, because he was investing, not trying to skim market moves. If the point is to have a stock market where people make investments, HFT literally serves no purpose. It's like getting a weather update every second. If you're investing in a company for its merits, those don't change by the second or even by the day.

[nv-vn]

I didn't mean to call the GFC a bug, I'm saying that the instances where volatility has significantly and immediately spiked have been:

1. The GFC which wasn't caused by HFT

2. Certain instances where HFT bugs led to "flash crashes"

>If the point is to have a stock market where people make investments, HFT literally serves no purpose

This is patently false. Imagine a situation where the price of AAPL suddenly plummets because of an influx of sellers. If you want to close a long position with AAPL to lock in your gains, there will simply not be enough buyers for your shares to sell most of the time. The purpose of market makers is to make this sale possible because they are still able to profit or nearly break even from buying your shares (and are often contractually obligated to do so). Without someone taking the risk that market makers take, the stock would just free fall indefinitely and nobody would be able to take a profit off their investment.

A similar situation is options market making. People/institutional investors like Warren Buffet hedge their bets by purchasing options to protect them when their expectations fail to pan out. In such a situation, it is imperative that options are able to be purchased for a fair price and due to volatility the price from 10 minutes ago is almost certainly wrong. Likewise, it's important that a contract even exists for your desired purposes.

The purpose of HFT isn't just to give the most recent update, but rather to provide the essential pricing of various derivative instruments which depend on immediate values like the price, volatility, etc. of the underlyings. The immediate ability for your order to execute also protects you from the market's volatility, since you can essentially lock in your price as soon as you see the market moving. The blatant truth is that many modern portfolios consist of more than just unhedged long positions in a variety of stocks and as such a lot more complexity is required than "investing by a company's merits," even in the world of "value investing."