[tzs]

Is that better liquidity, etc., actually needed?

If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out.

I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news.

If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.

[JumpCrisscross]

> Is that better liquidity, etc., actually needed

Broadly speaking, yes. Turning down liquidity increases spreads which affects which sorts of companies are able to raise what sorts of capital in those markets.

The paradox of HFT is that it's much smaller and more efficient than the slower, manpower-heavy Wall Street industry it replaced. It's just weird, which makes it easy to demonise in popular politics.

[AnarchismIsCool]

No they're definitely evil. Maybe not broadly, but they keep trying to force long-standing public RF spectrum into the private domain just so random companies can have a very slight trading edge. I have a hard time believing that there aren't other negative externalities.

[infecto]

Is more liquidity needed? Yes, we have drastically reduced spreads these days.

Markets facilitate the buying and selling of securities, providing a regulated platform for companies to raise capital and for investors to trade assets based on supply and demand. Reducing spreads is optimal for everyone. Your making up some kind of pie in the sky idea of how markets should exist. The folks doing HFT or other type of flat at the end of day shops do not have the capital to move prices as much as you would like to think. Even if they did cause some large movement in the stock, there is a good chance there is a larger fish ready to take the other side.

[reisse]

You're missing the point, news never affect prices directly. News generate excess (compared with current price) supply or demand, which is the primary cause for price changes. In a certain way, it's always "market reacting to itself".