| HN Mirror

Stealing is a bit of a loaded word. The HFT algos provide immense liquidity to the market by, well, executing tons of transactions every second. This means when you decide you want to purchase 100 shares of a stock, one of the automated machines will try and sell you those shares for a slightly increased price to make a profit. Now the guys doing HFT would love to increase the price by 10% to sell you those shares, but since every single HFT computer sees that buy order, they quickly scramble to try and fill it. As a result, they focus on making a penny or two per share but executing the transaction in microseconds. By lowering their per share profit they can guarantee they will get the trade since otherwise another market maker will step in and offer the shares a penny lower. By executing tons of transactions a second they can make money doing this since they focus on buying/selling a large volume every day.

Back when all trades were performed by people it would be very difficult to trade with high precision numbers, but since the market makers all work on an automated basis, penny precision increases the resolution an algorithm can decide on the price to buy/sell a share. Since the algorithms are focusing on low profit but high volume, they will lower their profit to try and win the trade against the other market makers.

Why is this good for you? Unless you're trading thousands of times a day, you will only pay a tiny premium to the HFT guys as it's a race to the bottom for them (aka the current share price). They are focusing on speed, and as a result they can't spike up the price suddenly as the other algorithms will jump and and take the trade from them. This is the liquidity they provide to the market and also why when you place your order through your broker it goes through in seconds. If the minimum resolution was fractions of a cent that would be the resolution the algorithms would work at, so instead of paying a $0.01 per share premium you're paying a $0.125 per share premium since that's the minimum they can go while still selling for a profit. Before automated trading a real person would have to go out on the trading floor and try and find you some shares to buy. I can guarantee that you would pay a higher premium per share doing that vs having computers race each other to fill the order in microseconds.

Note: I glossed over a lot of information here and tried to simplify it a lot. It should give you a good idea why HFT is good for the individual investor though.