[gaika]

HFT serves the same purpose that human Market Makers and Specialists do, only better. Kill it, and you will end up paying more.

Did you complain when human travel agents were replaced by expedia and like? Would you complain if car salesman as a profession is gone? Do you see your profit when amazon is competing with all brick and mortar shops? What makes HFT so special in that list?

So strange to see that sentiment from a science fiction author. Afraid to lose to reality evolving faster than you can imagine?

[seeingfurther]

There have been studies proving that the majority of HFT traders are net liquidity 'takers'. The notion that HFT provide liquidity is false but the industry still propagates the myth to main street.

Have a look at a recent paper: http://www.bankofcanada.ca/wp-content/uploads/2012/11/Brogaa...

[natec]

This paper is a joke. It only looks at the S&P futures. If I added liquidity in SPY or any of the other S&P ETF, hedged my exposure by removing liquidity in the futures, they would consider me an 'aggressive' trader.

They're missing 90% of the picture.

[gaika]

It is an ecosystem, of course traders with fast computers would try to fill all the niches they can. Take a look at a broader picture: http://www-rcf.usc.edu/~lharris/ACROBAT/Zerosum.pdf

Is suspect those in "Panel C: Losers who expect to profit from trading but will not" are complaining the most.

[seeingfurther]

You're citing a very old paper that makes no mention of HFT? Not sure I follow the reasoning for the citation.

No one is saying that speculative traders don't serve a function in the market place. However you said "HFT serves the same purpose that human Market Makers and Specialists" when it has been proven they don't. HFT want you to believe that they serve some altruistic purpose to the marketplace to legitimize their existence. The truth is that HFT serves as a quasi-tax on each and every share traded because to execute a trade in today's marketplace non-HFT volume almost invariably passes through the hands of HFT volume thereby shaving pennies of profit off each trade.

[bo1024]

Do you have some citation for that statement? Is there something that makes trading every millisecond much more efficient than trading, say, every tenth of a second?

[gaika]

For example traders in equities can participate in "on close" auctions if they prefer to do so. No millisecond guessing, no bid/ask at all, pure double side auction. Yet only ~10% of the volume goes there.

You can open up your own ECN and offer fixed auctions every minute if you think this will attract people who feel cheated by HFT.

[akjj]

While algorithmic trading may provide liquidity, it tends to exit markets during crashes and abnormal events. Moreover, I suspect that high-frequency trading's real advantage is not in providing lower spreads, but in much faster reaction time. I would eagerly agree to slightly higher spreads and slower times for trades if it meant less volatility and fewer crashes.

[gaika]

Those traders who didn't exit during the flash crash profited the most, what makes you think they will pull out the next time? On the flip side: those Market Makers that were forced to trade Facebook on the day of the IPO lost the most, when the system was totally broken, what makes you think they will handle the next problem better?

Anybody who's making a profit is almost by definition making the markets more efficient and less volatile. They buy when the price is low (pushing it up) and sell when it is high (pushing down).

[kjackson2012]

No, they don't serve the same purpose that market markers and specialists do. MM and Specialists serve to stabilize the markets and are obligated to create and maintain orderly markets.

HFT have no such obligation, so they can create liquidity and remove it whenever they want. They caused the Flash Crash in 2010 by removing a large amount of liquidity when the markets needed it the most.

If HFT were forced to maintain liquidity like real market makers and specialists, then I would have no qualms with them. But they want to have their cake and eat it too, they say they provide liquidity but only when it's convenient for them, and that is the part that is total BS.