They don't get unnecessary volatility unless they're paying attention to the order book all the time. Realized equity volatility is MUCH MUCH MUCH lower in the era of HFT.

Yes, "flash crashes" exist, and normally because of liquidity disappearing. Yes, algos are basically sheep that all bail at the same time. But overall, the net effect is massively beneficial to everyone except lazy traders (which include fund managers who miss the days of getting lots of steak dinners from their favorite brokers).

I'm not arguing against algos or HFT, just spoofing. also I updated my comment to ask about level-2 quote information. If people are stupid for acting on perceived intention of other market participants, wouldn't that make the case that L2 quotes are entirely garbage and should just be removed from the exchange ?

You're conflating two things (in my mind). L2 is very useful to people like me. If it's useful to you, you should be able to handle spoofing.

The "average investor" doesn't need L2, and doesn't care what it says, including flashing "fake" orders.

HFT doesn't really do anything for markets since they take very little risk, and that is the purpose of a market... the magic coil will kill your business anyway

I thought true HFT (not short-term momo, etc. where the intention is to actually take risk) had essentially died already, Virtu aside

True HFT is not in any sense dead, it's just matured so only those with deeper pockets can compete.

Flash crashes have no effect on buy and hold investors. You're holding, there's a crash, you're holding, bounces back, you're still holding.

Not remotely true, many buy and hold investors have stops to limit their losses and/or exit their positions at certain levels. Flash crashes hurt them greatly.

Which part of "buy and hold" includes "sell when it goes down"?

It's called cutting your losses. Buy and hold isn't "buy and go down with the ship".

No in fact that is the opposite of buy and hold. If you are selling as it goes down you may as well just light your money on fire.

So you'd rather ride the sinking ship and lose all your money as the company goes bankrupt? Are you saying you'd never exit any of your positions no matter how much money you lost?

Correct and correct.

The stock market cannot go to 0. It is literally impossible. If you are invested in the fortune 500.. and the value went to literally 0.. we are in a zombie Apocalypse. Money no longer has value. So yes I lost all my investment, but I also don't have a job, and a gun is my most valuable asset.

Buy and hold = Buy big index funds (i.e. Fortune 500), and then never ever ever ever sell, until you are ready to spend the money (i.e. draw-downs in retirement).

Trying to go "oh the market lost 20% this week, it is going to 0 soon" is a fools investing.

The market itself cannot go to zero, but individual stocks can. If you're of the view the market can't be beat and investing in index funds is the way to go then your position is fine. If you're of the view where you select the stocks you want to invest in, as a great number of market participants are, then your position if flawed because stocks do go to 0 and as such exiting losing stocks makes sense. Tossing all your money into an index fund is not trading, so you're not even talking about the same thing I am.

Flash crashes massively hurt people who invest in particular stocks because they do often have exit points which get triggered by those crashes. The advice you're giving doesn't apply to these people, they're not the ones just dumping everything into an index fund.

Also known as a make loss order. :(

Better to have a loss limiter, than lose it all. Without a stop loss, you can't limit your risk. And yes, exiting at a small loss is the point, it prevents a much bigger loss. Refusing to exit with a loss is how the market takes it all from you.

Retirees might need to liquid a percentage of their portfolio each month to pay their bills. Getting caught in a flash crash can have an effect on them.

In a general sense though I agree that the behavior shouldn't be illegal but am fine with exchanges implementing rules about it. For a trade to occur both the buyer and the seller are getting what they want at a price they both deem acceptable. Phantom orders does not inherently change that.

Keep in mind that you're talking about getting caught in a window that was 34 minutes long. So you'd have to be pretty unlucky, not to mention oblivious, to push through a market sell order at that time.