You seem to be implicitly assuming that financial markets are efficient and that market makers and high-frequency trading firms are the ones making that happen. Both of these assumptions are demonstrably false.
? HFT facilitates liquidity, liquidity facilitates efficiency.
Nobody really cares (except for traders) if the US 10 year note is at 1.54% or 1.52%, but rather if it's at 1.5%, or 2.0%, or 3.0%. Or even 10%.
HFT just means you trade a lot and you have low tick to trade latency. It doesn't say much about why you are trading.
For example you could have a HFT stat arb strategy in which you are arbing higher dimensional factors that are pretty far from obvious.
In general, the speed wars are over and everyone is reaching deep to become as smart as possible. Or in the other words, just being fast is no longer an edge, it's a commodity.
I'm curious what the best techniques for being "smart" are when you have to have such quick turnaround. Are these rules-based techniques, statistical but interpretable, or black box?
But you're right that being fast and smart is pretty hard. You almost always have to sacrifice one for the other. Different firms operate on different spectrums of this speed vs smarts divide: some are faster and dumber (relatively), some are slower and smarter. But everyone is trying to up skill (analogous to moving up on the value chain), because the markets have gotten fiercely competitive at the nanosecond to millisecond scale, especially on american venues (CME for example is a straight shark tank).
What does this mean (HFT stat arb strategy)? What higher dimensional factors ? Ty!
Can you demonstrate?
https://www.worldscientific.com/worldscibooks/10.1142/11484#...