Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

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> I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading.

Well I guess I'm very biased but here's my stab at it.

High Frequency trading is at the for front of alot of technology such as ASIC's, Infiniband networking gear,and low latency OS and networking stacks.

You could argue that they help push these technologies forward by providing the first customer for these areas.

Liquidity has gone up with the advent of High Frequency trading but like someone else has said its hard to disentangle all market factors to say this is due to HF Trading.

> Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

To be fair, this statement is the equivalent of "I've heard evolution is a well followed theory but something about it doesn't ring true to me."

What sort of explanation would you like that hasn't already been said 100's of times by people more qualified than me?

You haven't said what you don't like or disagree with about the many existing explanations:)

High Frequency trading is at the for front of alot of technology such as ASIC's, Infiniband networking gear,and low latency OS and networking stacks.

That's not an argument for HFT. If HFT is useless, then it has divested a great amount of research into technologies that no one really wanted otherwise, i. e., that the social cost of HFT is greater. Standard microeconomics.

The question is, what's HFT good for? Do its benefits outweigh its costs? I believe they don't. Low-quality liquidity under the 1s frame is not only useless for traders, it has a great social cost, in the form of research diverted to this inane game. The only plausible arguments I've found for HFT claim that HF traders wouldn't profit if it wasn't useful -- which is really just begging the question; a circular argument.

What good, I ask you, has Reuter's telegram company done for the world? Aside from getting some information to a few London banks and trading houses, we've seen no other applications made of this infrastructure, and should therefore assume none will ever exist.

-lolcraft, 1852

All intermediaries -- be it floor traders, or HFT's -- earn money from the same source: the difference between prices that actual investors buy and sell stocks at (lower difference is also referred to as higher liquidity).

Now, the resources that were going to traditional specialists and a subset of the professional traders, are going to HFT's, with some of that returning to investors in form of lower trading costs (if we buy the argument that liquidity has indeed improved, of course. Most of what I've seen indicates that it has.) As a side effect, we have technology improvement, useful for other things.

Now, there can be an argument made against HFT's, and in favor of more traditional traders, related to a potential decline in market depth. So far, I have not seen any convincing proof of this being the case, but I am open to it.

However, I think a lot of people arguing against HFT's do not quite understand that their position is literally that we need to enact legislation in order to protect Wall Street from competition :)

It's the whole war funds large amounts of science R&D argument and thus is a great benefit for humanity.

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