> How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor?

The average investor holds onto stocks for months to years. A flash crash may last minutes, before the price is back where it was. How does a flash crash hurt the average investor?

> Not to mention the practice of front-running and other shady practices that HFT's use to make profit.

Front running is where a broker or other agent trades on private information given to them by their client: the broker receives a big buy order from their client and then buys the market up on their own account before executing the client order and making a massive profit. This is illegal.

HFTs can't front run - they only have the same public information at the same time as everyone else. The fact they can execute on that faster than others hardly seems 'shady'.

> How does a flash crash hurt the average investor?

Maybe it can trigger "stop loss" orders?

Maybe I'm biased, but I say that anyone who uses stops has voluntarily left the "average investor" realm and entered the "amateur day trader" arena

> > How does a flash crash hurt the average investor?

> Maybe it can trigger "stop loss" orders?

The average investor is a person who has a pension invested across a range of funds held with large fund management companies. Anyone mis-using stoplosses is not an 'average' investor.

Running stops was a common pit trader game.

HFT firms perform a different kind of front running. If I'm an HFT firm and I see a large buy order on the books at exchange A, I can use my low-latency links to exchanges B, C to execute my own buy orders there before the rest of the market reacts.

It's not illegal, but it is still front-running the rest of the market due to latency arbitrage. Check out Flash Boys by Michael Lewis for more on the topic.

This isn't a definition of front running that anyone in the industry uses.

As you say, this is just arbitrage on public information. Latency arbitrage has been occurring for the last 200 years at least, it's an inevitable outcome of any system with multiple, geographicly separated markets.

P.S. I read Flash Boys. It's not very good.

This hypothetical HFT firm is part of "the rest of the market reacting"

They just happen to be the first among all participants to react. Why is that bad? Somebody has to be first

Perhaps I have misunderstood what front running is, but I have always thought it is really only applicable when you have an obligation to your clients to give them good execution. You can't front run a market, just your clients. An HFT has no clients on behalf of which they are executing trades, they are just trading for their own account.