Go for it.

If a trader comes in an buys the ETF from me at 217.76 then I need to be able to hedge immediately in other products. Without continuous trading I would need to quote wider.

Second, HFTs make less money per dollar traded than the people who used to do this. In a sense, HFTs "won" because they were willing to do this cheaper than anyone else.

This is different from investment banking, where it's my impression that they get paid these huge fees because CEOs hire their friends and pay them with shareholders' money.

Probably keep in mind that the nominal value of the stocks changing hands on a given day is hundreds of billions of dollars and that an actively trading counterparty is facilitating the movement of that money. What's fair compensation for that?

Note I'm actually asking these questions - not just being rhetorical. The whole concept of it seems plainly ridiculous to me but I don't know much about this area.

You had 10 very tall loud guys in brightly colored jackets yelling at each other in a pit. Mentally they were running the same algorithms as HFTs, just slower.

Later on you had some fast fingered guys watching charts and mentally running the same algorithms as guys in the pit, just a bit faster.

HFTs do the exact same thing that pit traders did. They just do it faster and cheaper.

And if you really think they don't provide a useful service, you can very easily NOT buy their services - just change one flag in FIX. The question to ask yourself is why everyone chooses to trade with them.

https://www.chrisstucchio.com/blog/2014/how_to_not_get_rippe...

Exploiting inefficiencies in a competing algorithm is the same type of thing as exploiting inefficiencies in the mental model of the guy standing next to you. Taking advantage of better market proximity is the same type of thing as drinking less than the other guys in the pit.

I'm not asking for how we ended up here. I get that faster = better and 1ms faster is still 1ms better. What I'm asking is what value it brings to the world — specifically the world outside of, historically, the pit, and today, outside of the computers executing trades.

Are goods more accurately priced? Is there more liquidity in the market? Is the market more stable? Is the market more efficient, or is it only the technical implementation of the market that's made more efficient by these? Do these benefits, if they're present, outweigh the cost of things like flash crashes caused by algorithms? If flash crashes hurt all of us, then shouldn't we all be benefited by the algorithms when they're doing well? Do we benefit and by how much?

This is why people want "nerdy HFTs" to be taxed in a special way. Maybe it's because they can't articulate the value or maybe it's because there is no value. I can't see the difference and I can't get anything other than evasive comparisons when I ask what the difference is.

https://www.ft.com/content/ff8c6486-cb37-11e3-ba95-00144feab...

(bounce "Vanguard chief defends high-frequency trading firms" through Google if there is a paywall)

If you buy and hold, HFT helps you, by reducing the cost of execution --- both by reducing the spread, which is a tax you pay any time you place a market order, and by literally reducing trading fees. In fact, even if you're an active trader, HFT usually helps you: the only people truly harmed by HFT are the ones who tried to make a living selling liquidity before, who are now being outcompeted.

Suddenly some evil nerds come along and use computers to "pick him off"! ("Pick off" is a wonderful phrase Michael Lewis uses but never defines, but it somehow involves computers doing evil things.)

Finally, at the end, Katsuyama builds a new exchange with no nerds allowed.

Have you read, and if so, would you recommend I read Flash Boys: Not So Fast by Peter Kovac for a more balanced/informed perspective on the subject? Should I read both? Keep in mind my knowledge of HFT is extremely limited.

If you want an introduction to HFT, I'll shamelessly plug my blog posts which describe the basic mechanics of it:

https://www.chrisstucchio.com/blog/2012/hft_apology.html https://www.chrisstucchio.com/blog/2012/hft_apology2.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...

I also wrote a few posts later on about controversial HFT topics: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in... https://www.chrisstucchio.com/blog/2014/fervent_defense_of_f... https://www.chrisstucchio.com/blog/2014/quote_stuffing_is_a_...

My posts probably read more like a "how to program python" tutorial than a compelling Michael Lewis narrative, however.

The book Trading and Exchanges ( http://amzn.to/2f0qtJb ) goes into a lot more detail than my blog, but it costs about $50-$90.

I say "almost" glibly, a refusal to see the machinery at work is how political movements lie to themselves.