The line of reasoning you've taken seems reasonable, but I don't think it works. So let's step back a little and take on an even more fundamental moralistic ar

The line of reasoning you've taken seems reasonable, but I don't think it works. So let's step back a little and take on an even more fundamental moralistic argument. The workers of the companies whose shares hedge fund managers trade may say, wait a minute, we're doing all the work and there's somebody out there creating models of our work in some dinky little spreadsheet and making more money than all of us by trading units of our work! From some moral standpoint, they are not really wrong - hedge fund managers are disproportionately well-compensated and they don't directly add value. But what happens when you stop hedge fund managers (or really any informed traders) from arbitraging based on whatever research and analysis they do? Prices get out of line. And if prices get out of line or disappear, transactions either go away or are made on uneconomic terms. That's the problem with getting rid of hedge fund managers. This is why financial speculation is tolerated. Now how does HFT affect this equation? Well, it's quite simple - they accelerate the social benefits of the actions of hedge fund managers while reducing their profits. When you're looking purely at the interaction between HFT and hedge funds, it seems like hedge funds are doing all the hard work and HFT is taking a cut for no reason. But when you realize that the product sold by these hedge fund managers to the rest of the society is better prices, HFT is bargaining with the hedge fund managers on behalf of the broader society and delivering the product quicker and cheaper. The key to understanding this is that while the social value of hedge fund managers comes from efficient markets they help create, they themselves don't want efficient markets because they can't get paid as well in efficient markets. What HFT does is it brings about efficient prices a little quicker than they would otherwise. Edit: The above does not preclude the possibility that HFT is harmful, but it limits the possibility largely to a world where hedge fund managers as a group are too poorly paid to be properly incentivized to do their work well. I don't think anyone's gonna go there. Edit2: Another way to think about this is that hedge fund managers expressing outrage are trying to have it both ways - they want to get paid for their work but don't want to move prices in the process, even though price movements are their only contribution to society. And don't forget their access to liquidity comes from noise-traders who are willing to accept prices as they exist and HFT helps even the playing field between noise-traders and informed-traders, allowing the former to trade in sufficient volume to keep the spreads low. But for the most part, it's not the buy-side complaining about HFT, because there have always been gate keepers and paying them has always been part of the game. Almost all actual complaints about HFT seem to come from people whose work is being replaced by HFT - the old school line-jumpers whose art no longer seems to translate to the brave new world.