If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010?
Most importantly- if these products are useless and harmful, why do people keep buying them?
Because HFTs, who enjoy the privilege of walking away from the market at the worst possible moment, had largely displaced traditional market makers who make expensive commitments not to do that. Nobody specifically chooses to do business with them, they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen.
Could you explain the mechanics of how this works?
Near as I can tell, the only way to become a "middleman" is to offer a better price than your competitors or to offer the same price at an earlier time. Is there a "front-run my competitors" FIX command I'm not aware of?
When a HFT buys and sells with a holding time in milliseconds, they are in no way guiding the correct allocation of our economy's resources, they are merely bleeding those who are. That they can do so profitably is showing us what we should fix about the way trades clear.
On net, the institutional trader is gaining $0.01 at the expense of retail investors.
Now, in a world with professional HFTs, the institutional investor can't do this as easily and must pay the retail investors $20.01. How horrible!
It's hard to see why you are calling the HFT an "unwanted middleman". I mean sure - the institutional investor would love to keep taking money from the retail investors. But the retail investors want to keep their pennies - they certainly want the HFT to be present.
As I said, the only way to become a middleman is to offer a better price than your competitors.
No one may explicitly choose to trade with HFT firms, but that doesn't mean they don't value their presence
"Although Vanguard does not engage in "high frequency trading" and does not operate a "dark pool," we believe much of the public concern over "high frequency trading" is misplaced and believes such activity, appropriately examined, contributes to a more efficient market that benefits all investors."
I could not tell if you were talking about finance or cigarettes.