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HFT reduces spreads. End users end up benefiting from lower prices. If you wanted to make HFT less of a game, adding much higher precision would help. So instead of pricing in increments of a penny, which is a lot, try, say, 1/100,000th of a penny (8 digit precision on the price).

If we accept financial services as a whole to be OK, then HFT certainly is. I'd suggest the book "Dark Pools": https://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp...

It describes how automatic trading started. If you're a programmer, you'll probably have your mouth hanging open realising how up-for-grabs so much money was. At least that's how it sounded on reading it.




Sweet the spreads are reduced. Thanks HFT! I've been up all night worrying about them.

Everyone profiting from HFT are trying desperately to convince everyone else that they provide a service and benefit and they just can't understand why normal folks aren't buying it.

The amount of power of HFT to move markets is frightening. Like, for example bogus assassination tweet sending the stock markets plunging $136 billion in two minutes*

* http://www.bloomberg.com/news/articles/2013-04-23/fake-repor...


As an average individual investor who thinks that keeping significant part of my net worth in stocks is a good strategy I do care about spreads and I don't care about market plunging $136 billion for a day or two. Why would I? Why would anyone? The company is still there, standing, producing, paying dividends. I couldn't care less about it plunging 50% for few hours because some suckers decided to sell some stocks for half the price. Maybe I can even benefit by buying then.

HFT is a godsend for your average investor who can now save money when buying/selling stocks instead of giving it to greedy traditional brokers on their overpriced services.


As an average Joe, I feel exactly the opposite. Spreads don't affect me much because the commission on a purchase or sale is so high and I trade infrequently. High volatility is what would make me more dyspeptic.


As an average individual investor, you're buying and holding for the long term, in which case you actually don't care about shaving razor-thin slices off spreads.


I do care. If I buy stocks to hold and sometimes re-balance the difference between spreads between liquid stocks (as in markets with active HFTs) and not liquid stocks (as for example in market in my country) is huge. Those things add-up.

I also want efficient arbitrage done by HFTs. I don't want to sell or buy being unaware of some important news. HFTs ensure I get a fair price without following the news every time I want to buy/sell something. The more efficient the market, the more liquidity and the lower the spreads - the better it is for me as an individual buy and holder.


People also might care if most of their retirement rests with some large insitutional investor.

So if you invest with an active mutual fund, HFT is either a) detecting any large move the fund makes and pushes up the price of the asset before the trade completes or b) making you use a more costly service to complete the trade secretively to hide it from HFT detection.

Passive funds might trade less but their moves are so widely broadcast you don't really need algorithms to detect them.


> HFT reduces spreads. End users end up benefiting from lower prices.

Is this really true? It's hard to understand how the fact that one guy can trade with a delay of two microseconds instead of three will benefit the market as a whole. I can tell you it is commonly thought that HFT's profits come at someone else's cost, and that someone else is precisely your "end user". See "front-running".


Front running is when you take your customers' orders, then use that knowledge to cheat them. For instance, your customer gives you an order to buy a stock. You then go and buy a bunch first, then sell to them at a profit.

Front running has nothing to do with speed. And since HFT firms don't have customers generally, they simply cannot front run.

The profits have come at the cost of other market makers - they're all HFT now. There's also the ability to adjust pricing quickly, so that when some large firm tries to buy or sell a large block, they don't get to avoid price impact as easily.


Front-running is precisely what Michael Lewis's Flash Boys is about.

The trades intercepted by HFT don't constitute marterial market information which could change the behavior of the trader being front-run. They can only serve, much as with Sysiphus, to take an existing transaction opportunity from them, after having been committed to it.


By end users you mean HFT trading firms?

"adding much higher precision would help. So instead of pricing in increments of a penny, which is a lot, try, say, 1/100,000th of a penny (8 digit precision on the price)"

So start gaming the price to fix gaming the trades?


I mean anyone not acting as a market maker.

It's not gaming the price. Using 1 penny increments is slightly less silly than 1/8th but makes about the same amount of sense: not much. There's no technical reason, it's purely a regulatory issue. (Well sub $1 stocks in the US are allowed 0.001 pricing.)




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