What you’re failing to disclose is that there is an easy way out of solving the adverse selection problem. For example you could buy “uninformed flow”. I think that you could agree that for the touted sophistication of the field you would expect something … more sophisticated?
Again, don’t get me wrong. I love the field but I think it’s stagnant in certain aspects and I like to have a sober view of it.
It’s too late in the day for me today to attempt to write a coherent and accurate explanation of exactly why I say that. However I will say you don’t understand this isn’t a zero sum game and it’s an incorrect argument to claim HFT is an arms race in a game like a war, which is a negative sum game.
Your risk argument doesn’t hold water because liquidity is not the only risk. There are at least 20+ I can think of from the top of my head without even trying.
I’ll rest my case here.
HN isn’t the best forum for this type of ongoing discussion. Engage me on reddit if you like. u/alchemist1e9
I agree it’s all quite understandable if people had the resources available. I would argue part of the reason it is opaque is the fears of operators that too much public attention can bring a lynch mob. This business can literally be one of the most profitable activities on the planet, but contrary to populist sentiment this is not evidence of wrong doing, it’s simply because it’s so automated and scalable and all electronic.
Back to ATS and dark liquidity, this isn’t as trivial to explain as you suggest, it requires understanding of flow toxicity and information theory to be understood completely. You must know that in markets, transactions can be beneficial to both parties as they have different objective functions and timescales.
What evidence can be presented that supports the idea HFT operators are extracting increasing costs on the system? I’m not aware of any.