[drunkpotato]

I've read elsewhere on here that the value of high-frequency trading is that it reduces transaction costs and increases liquidity in the market. I.e. it makes it easier for the humans to buy and sell at the prices they wish to buy and sell at.

Assuming that's true, the question then becomes what are the costs and externalities of HFT and, in balance, are we willing to make those trade-offs? I haven't seen anything addressing those issues yet, but I haven't been looking either.

HFT experts want to weigh in, pro/con/otherwise?

[yummyfajitas]

Since most of the people commenting here don't seem to even understand HFT, I'll just leave this here (a tutorial I wrote a while back):

http://www.chrisstucchio.com/blog/2012/hft_apology.html

http://www.chrisstucchio.com/blog/2012/hft_apology2.html

http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html

[rtpg]

you should probably link part 2 from the end of part 1, if not it's not obvious that you did write part 2.

[yummyfajitas]

Thanks.

[yscale]

HFTs tend to add liquidity when it's least valuable, and they tend to consume liquidity when it's most vital.

For example, an analysis of the 2010 flash crash shows it was worsened by HFTs fleeing their positions once volatility increased, which is the exact time that liquidity and market-making are most valuable.

If there is any social benefit to HFT it is utterly trivial.