Someone taking on loads of risk to carry out your commands efficiently is providing value.
You can argue whether they are doing so competently or not, or whether they are pricing optimally or not, but they are not just ”takers” or “leeches”.
Simply creating risky (in the colloquial meaning) things is not itself a reason to deserve money.
In this case KCG was doing the opposite of making markets --- they were taking --- they were eating the spread over and over and over again until they ran out of money.
Risk in finance definitely takes on more meaning than the narrow definition in modern portfolio theory (stddev of price).
This entire story is about a trading firm that lost 400m trying to provide market liquidity. Which part of the loads of risk isn't clear in this context?
They claim liquidity is their value but given how they act they don't seem to be providing measurable liquidity, either in terms of price or volume. (Yes they increase volume by getting in the middle of trades but that isn't useful volume...)
There's operational risk, like what brought down Knight Capital, that's a type of risk. Or the risk that you will be put out of business by competition because you were too slow to innovate while burning through all your cash runway. HFT firms face the same risks that other types of businesses face. Smaller HFT firms fail often, and larger firms tend to stay around (although sometimes they also fail and often they shrink), which is similar to many mature competitive industries.
> given how they act they don't seem to be providing measurable liquidity
I'm not sure "How they act" should inform one's perspective on the empirical question of whether or not they are adding to liquidity. There is a lot of serious debate and research that has gone into that question.
Being first to market does not impact liquidity availability. After all someone else has an order at that price already.
My points about risk are beyond going long or short for a meaningful amount of time (certainly not seconds, probably not minutes) trading quickly isn't hugely impactful on end users. Thus all of the downsides of trading quickly aren't reducing risk for them.