I read or watched somewhere where the algo traders would skim a tiny percentage of every transaction of mutual funds because they know exactly when to strike.
There are lots of sharks in the muddy water...
In flash boys the front-running that these quant funds are running isn't about an algorithm, but literally all about having high capacity pipes that can see an order come in and then fill it between different exchanges and based on the minute differences in stock prices pocket the difference.
So an algo fund can lose money if the algorithm is incorrect. While front-running you never lose money.
It's basically like being a tax collector.
I don't understand how they can see the order come in. Is this something that only happens in decentralized exchanges?
Isn't it more like paying off mobsters, or just having someone steal a fraction of a penny from everyone?
If you can see this, you can front the sell (before the deposit even confirms) and then be the buyer shortly after it confirms.
But I don’t see this as being much different than providing liquidity and taking the risk that someone else doesn’t want to take.