> 'Liquidity provision' is just 'fast cash for your distressed equities'. Yes, if prices are trending in an unfavorable direction investors/speculators would su

> 'Liquidity provision' is just 'fast cash for your distressed equities'. Yes, if prices are trending in an unfavorable direction investors/speculators would suffer a greater loss in a market without HFT as orders took minutes rather than seconds to clear. Liquidity provision is more than that. Without market makers/liquidity providers prices fluctuate a lot more because the balance of natural buyers/sellers varies over time. Liquidity provision is a shock absorber to those imbalances. > But you are indirectly collecting economic rents by trading so fast that retail investors can't connect with each other, they always end up connecting with the HFT. You are right that retail traders trade against HFTs most of the time. This is actually true for institutional investors as well, simply because HFTs provide almost all of the liquidity in stock market. I.e., it's not because HFT as are reacting to incoming orders faster (it is impossible to react to a marketable order before it trades by design), but because HFTs are the ones posting at the bid or ask. For retail traders there's the extra step that most (all?) retail brokers have agreements with HFTs where they send them their retail orders before they hit the markets. The HFTs can opt to trade against the retail trader but only if they give them a better price than they could have gotten at the exchanges. There is some unfounded misperception that this practice must be nefarious, based on the idea that the HFTs can only be doing this if they are pulling one over the retail traders. This is wrong, the reason HFTs like to trade against retail is that it is unlikely that a retail order is part of a large multi-million share meta-order that is going to push the price against the liquidity provider. This means that they can give retail traders lower spreads and still make money, both parties win. The party who loses in this are the institutional traders - since HFTs manage to segregate part of the retail flow, they end up using higher spreads for the rest of the flow. > So in that sense you are collecting rent on the expensive high speed trading infrastructure by getting to the front of every queue. This is stretching the definition of rent. If I own a well-run restaurant, am I collecting rent on expensive food preparation infrastructure that lets me prepare good food at a lower cost that my competitors? > A brilliant/knowledgeable retail trader is unable to monetize their comparative advantage because they can't compete with the HFT operator on execution speeds. They also have a hard time competing against traders working at big banks or hedge funds even if they don't use HFT infrastructure. In every field of human activity, professionals have big advantages over hobbyists, and that's fine. Also note that if you are a retail trader buying stocks with a long/medium term outlook HFT is good for you (lower trading costs!). If you want to be day trader, HFT might make your life harder, but it's not clear to me that's a bad thing. > The whole thing is built on FOMO, and creates the illusion of value by endlessly accelerating transaction speeds. Transaction speeds are not endlessly accelerated. There's a misapprehension that HFTs are trading in and out of positions in a millisecond time scale. That's absurd, you'd never make money that way. They care about their latency down to the microsecond or hundreds of nano-seconds because that lets them cancel orders quickly when it looks like the market is going to move against them and avoid adverse selection, the bane of the liquidity provider. > This is like arguing that people who drive way above the speed limit are creating value by arriving at their destination sooner (leaving more road space available) and encouraging others to drive fast (making the road transport system more efficient). Accidents that occur int he vicinity of speeding drivers' trajectory can be blamed on inferior driving standards. For the faster drivers, there is clear downside: the increased accidents. For HFT, what is that? > [...] The more it is automated and accelerated, the more it tends toward monopolistic concentration of capital in corporate entities and increases overall fragility of the system. HFT firms require very little capital compared to things like big banks or large hedge funds. I don't have the numbers but I am sure their combined capital is tiny fraction of the rest of players in financial markets. They don't hold large books ever, so if they go under, there is no fire sale that drives asset prices down and cause a crisis. They don't present a big systemic risk.