[rjrdi38dbbdb]

Nope. It's not better for known uninformed traders. If you mix them in with informed traders, market makers must widen spreads.

This is very obvious in institutional FX. Pure "retail" flow will get quoted much tighter spreads by banks and market makwrs than you'll see on any ECN. Yes, it can get skweded against predictable flow, but a true "noise" trader won't be affected by that and will definitely be better off with tailored liquidity.

[WiSaGaN]

You don’t have to trade with market makers.

[rjrdi38dbbdb]

So you're hoping get price improvement by crossing with other trader orders in the book?

Unless you have a good high frequency predictor and low latency order management (you don't), you're going to experience adverse selection. Either because you're taking resting orders that HFTs are smart enough to avoid or because your resting orders get run over by informed traders.

[WiSaGaN]

So you are saying HFT will avoid your market order in this case, while HFT will provide better price when they are the sole counter party in separate liquidity pool? HFT will always maximize profit. To have multiple venues you are just paying HFT as middle man to transfer liquidity from one to another, where you can trade directly with each other if everyone is on one venue, e.g. one centralized limit order book. Transfering liquidity is not HFT's fault, but saying paying for order flow is better for retail is just disinformation. Without evenly discussing the function of HFT, you will get disinformation that demonize HFT as well, and common people won't listen to you later.

[rjrdi38dbbdb]

> So you are saying HFT will avoid your market order in this case, while HFT will provide better price when they are the sole counter party in separate liquidity pool?

Yes, absolutely. The best feeds (tightest spreads) are only given to specific clients who are requested to trade exclusively with them. If they detect you splitting your orders up between venues, they'll worsen your feed. The feed they'll send to public lit ECNs will generally be their worst (widest spread).

[sdwr]

Ahh, this is the comment that cleared it up for me.

MM takes on risk, can offer tighter spread when not exploited (ex. HFT arbitrage)

Could theoretically take advantage by manipulating prices

But is already operating within the bounds of the existing public spread