How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor?
Not to mention the practice of front-running and other shady practices that HFT's use to make profit.
Not to mention the practice of front-running and other shady practices that HFT's use to make profit.
The average investor holds onto stocks for months to years. A flash crash may last minutes, before the price is back where it was. How does a flash crash hurt the average investor?
> Not to mention the practice of front-running and other shady practices that HFT's use to make profit.
Front running is where a broker or other agent trades on private information given to them by their client: the broker receives a big buy order from their client and then buys the market up on their own account before executing the client order and making a massive profit. This is illegal.
HFTs can't front run - they only have the same public information at the same time as everyone else. The fact they can execute on that faster than others hardly seems 'shady'.
Maybe it can trigger "stop loss" orders?
> Maybe it can trigger "stop loss" orders?
The average investor is a person who has a pension invested across a range of funds held with large fund management companies. Anyone mis-using stoplosses is not an 'average' investor.
It's not illegal, but it is still front-running the rest of the market due to latency arbitrage. Check out Flash Boys by Michael Lewis for more on the topic.
As you say, this is just arbitrage on public information. Latency arbitrage has been occurring for the last 200 years at least, it's an inevitable outcome of any system with multiple, geographicly separated markets.
P.S. I read Flash Boys. It's not very good.
They just happen to be the first among all participants to react. Why is that bad? Somebody has to be first