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By luck and skill you found a temporary systematic bias that other players missed. It was even luckier that you found it without a lot of upfront losses. But you could have made many attempts and not found any bias and overall lost money and gave up. If lots of people are losing small sums to find these biases, then it may be that the expected return of trying to find biases is zero or negative.

At best HFT is a near zero sum game. It isn't creating value for customers. It isn't making the world a better place.

It is an unfortunate flaw of our economic system that so many smart people put so much effort into playing zero sum games with each other.




An example of your last point.

I know a very good engineer, who used to design innovative chips for 4G/LTE mobile telephony. These chips contributed to the market position of one of today's leading mobile phone manufacturers.

Today, this engineer is designing ASICs for high frequency trading (basically a specialised Ethernet switch, with all extra logic stripped out, so packets go through a few nanoseconds faster).

HFT isn't a zero sum game. It's sucking resources away from productive disciplines into an unproductive discipline, so making a net negative contribution.

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Why are you ignoring HFT's positive contribution?

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Could you please elaborate what that contribution is?

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It's always the same bullshit excuse: "providing liquidity". It's just that you pretty much need to be another HFT bot to partake in that liquidity.

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From what I understood, this contribution is not about making stuff nanoseconds faster, but about how this pushes spreads down. Anyone doing any trading will be happier to see the spreads smaller, wouldn't he?

Note: by spreads I mean the difference between buy and sell prices. I don't know if there is a special word for it in this context.

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Exactly. HFT reduces counterparty risk for market makers (because with HFT, it's much more likely that there will be a counterparty for any given trade). This enables the market makers to reduce their bid-ask spreads; the profit from the bid-ask spread is what covers the risk a market maker faces from their market clearing obligations.

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Do you know of any data on the size of the spreads over time?

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How about efficiency? People call the liquidity providing aspects of HFT 'bullshit', but computers have vastly reduced the manpower necessary to manage a market.

Each futures pit used to have hundreds of traders, who required several assistants/support and commanded a huge salary. Many firms needed multiple traders in a pit, just to be able to make sure they could provide liquidity to all possible market participants. Today, a couple strategists with a small team of programmers can cover dozens of futures markets at once.

The same principle holds across bond, FX, equity and options markets alike. HFT has supplanted a terribly inefficient market with a better one. Is it perfect or even good? Probably not, but it's magnitudes better than the traditional method.

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An argument can also be made that this is a net negative contribution, as instead of a market employing hundreds of people, it's only employing dozens. Ergo, more unemployed people. While this is good for the market's owners and those currently employed to trade there, it is bad for the economy as a whole.

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You're on Hacker News, but you think that destroying jobs with technological innovation is a bad thing?

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Not at all, but in re-reading my comment I can see why you'd think that. My intention was to make a devil's advocate comment: 2 sides to every coin, etc.

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There are plenty of arguments for its contribution. I don't need to repeat them.

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