As I mentioned, I'm not an economics or finance expert, so I'd be interested to hear what more experienced people would have to say.
As I mentioned, I'm not an economics or finance expert, so I'd be interested to hear what more experienced people would have to say.
For example, a trade where someone needs to convert his assets into cash due to a family emergency benefits both sides. The person with the emergency takes liquidity from the market and pays a premium because the trade is time-sensitive - he needs cash the next day. Other liquidity traders may profit from such "uninformed" flow in the long term, but both parties are happy because they got what they want.
Another example is trading off risk and hedging against certain changes in the world that would affect you.
At a short time scale, yes there tends to be a winner and a loser, but even then it's not so clear cut. Most of the trades happening at a short time scale are institutional rather than retail (i.e. people who have the risk tolerance for this type of trading & who have profited enough from it to keep doing this type of behavior). The activity of most HFT firms is some combination of market making & arbitrage, where the profit can be thought of as a fee for trading for other participants (e.g. Robinhood doesn't charge commission but sells order flow, which tends to be cheaper than commission per trade). In general, price improvement is also possible since these make markets more efficient, so as an example it would not be unusual to see firm A sell to firm B who sells to firm C, where both A & B see a profit from their sales. This is possible because prices across markets are not automatically synced, so A has access to a better price than B who has access to a better price than C. And because institutional trading dwarfs any kind of retail trading, the trades can appear high frequency from the perspective of the HFT firm while only occurring, say, once every six months from the perspective of the retail trader.
I can buy the idea of high frequnecy trading serving as market making even if it is not something I can fully appreciate. But it still seems like these high frequency traders (and others invovled in investing based on fluctations) are mainly skimming money from the market without providing value.