So they're not adding a lot now relative to the cost and complexity. But banning the whole practice will make the markets function much worse and more expensive for everyone.
Similar for liquidity provision; most of the optimal control theory solutions for market making with alpha signal will widen the spread and remove liquidity the moment they sense something is off.
But if a stock is going up, HFT inserts themselves between the buyer and the seller and takes a small cut in the process. I don't see how it helps the liquidity stock, but seems to be more like an HFT tax.
They didn't increase the number of stock shares, just got in between the buy/ask margin.
Here's a much deeper analysis on bid ask spread from HFT market making: https://www.cftc.gov/sites/default/files/2022-08/HFT_and_mar...
Impacts of HFT on society:
- You no longer have to pay a stockbroker $100 over the phone to take a position and hope they get you a decent price. Trading is instant and spreads are extremely tight.
- Money they make is made by 1. offering you convenience (usually for an imperceptibly small fee built into the spread) or against people trying to do the exact same thing that they are (intraday trading).
The intraday trading is a zero sum game, but the liquidity providing is net positive. The zero sum component only affects you if you're trying to profit from intra-day trading too, in which case, you're a hypocrite for calling them out.
Amongst people who understand HFT well enough to realize it benefits them, but who hate it anyway, I think the vitriol specific to HFT is that it's a small club and they aren't part of it. Algo-trading jobs can pay significantly better than the best principal engineer jobs at FAANG (which can also be argued to be useless jobs), and those jobs are also much harder to land (think Rentech).
It was worse in the "good old days". The cost of trading was much higher and the people that felt that were the people who needed the market to make the world work (risk management, investment etc.)
Markets make the world a better place (it's not a new idea), and more efficient markets are better than less efficient ones.
> If not, how about a per-transaction tax on securities trades, one that wouldn't be out of line for individual investors,
Why do you want my pension fund to spend more of my money on trading costs?
This is a problem of market structures, if I understand it correctly; facilitated largely by Reg NMI in the US and its equivalents globally. And it's not like all was well before that: Instead of HFTs, it was market makers or specialists pocketing impressive, largely risk-free profits.
What you'd ideally want is to preserve the good that the HFTs facilitate (liquidity, more efficient price discovery, smaller spreads etc.) while avoiding the bad (siphoning off investors' money from the markets and math and physics PhDs from the world's top schools), but I haven't yet heard a convincing proposal for that.
Former options trader. This improves dealers’ profits.
Consider a once-a-day auction. The person who puts in an order at 9:35AM incorporates five minutes’ information. The person who does so at 3:55PM, all but five minutes’. Anything material that happened at Noon is extracted from the early order and benefited to the late one. If the orders are unsealed, the later order can incorporate the early order’s existence.
With options, that means the high-speed late order has better information about the underlying stock than the orders preceding it. So it generates risk-free profits from them.
Reality remains real time.
I'd put in lowball bids and ludicrous (but plausibly deniable) offers and wait for the unreasonably-short windows.
The solution to this problem is people not wanting immediacy. (Same with scalpers.) But people like immediacy. Unfortunately, there is also political capital in railing against those who provide that immediacy. In a way, it's a stable socioeconomic system: HFT provides liquidity, market partiipants take it, activists rail against it, regulators complain and win the activists' favour.
https://cdn.cboe.com/resources/membership/US_Options_Auction...
And: https://www.cboe.com/us/options/trading/complex_orders/
Either way I don't think this would resolve the issue with siphoning talent.
> per-transaction tax on securities trades
This already exists anyway. I assume you just want to increase it?
HST turns what would have been a single trade into multiple trades making volume go up and to the right.
And even disregarding that, practically, the kind of people working in HFT usually have a skill sets that make them highly employable anywhere. If anything, HFT is draining some of the best mathematicians and software engineers from other projects that can't afford to pay as well.
Its more important that we live in huge/new houses and drive new cars and have nice vacations than fund to finding a cure for cancer, and people make this decision every day.
In my view, it's disingenuous and cynical towards the person doing the job: They're effectively historical actors in a museum because we haven't figured out how else to solve for the distribution of monetary and "soft" values like societal status, feeling like a productive member of society etc.
There's nothing at all wrong in my view with letting people do what they want and cross-subsidizing that activity as a society, but why not call it what it is? And why stop at office-style work and exclude e.g. art?