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Comment by bsaul | Hacker News Reader

The general audience ( that includes me ) thinks that high frequency trading makes easy money out of nothing. But for someone to make money, another's got to loose. So has anyone heard of hft firms going bankrupt ?

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You are assuming the market is a closed system, but it's not really: you aren't gambling with other people, instead the capital invested should be put to productive use. HFT helps with liquidity, though there are probably better solutions to that problem.

Honest question, why would liquidity of anything less than, say a week, be useful?

Same question for a day? An hour? A minute? A second...

Suppose we made regular businesses wait an extra week to receive shipments. What if you had to wait an extra minute to launch a new server on AWS? If a fundamentals trader has put in an order to buy a stock they've presumably done so for a business reason and slowing that down slows down their business.

I'm sure not automatically trading hundreds of times per second will not impact their business (unless their business is trading faster than somebody else).

YC funded a startup that was about selling your old Apple gear quicker than you could on EBay. That's an example of why you'd want more liquidity.

A stock market isn't a closed system because events from real life increase or decrease the global value traded in that market. But when you're trading at thousands of orders per seconds, then real life hasn't any impact, and so i assumed a market could be approximated as a closed system.

Market makers have been making money for as long as markets have existed. In financial markets, there are now fewer of them, competing for smaller profits, and they use computers to trade.

Knight Capital Group went bankrupt, it wasn't due to HFT, but was caused by bad electronic trading.

http://pythonsweetness.tumblr.com/post/64740079543/how-to-lo...

But for someone to make money, another's got to loose.

That's not true, unless you believe you "lose" everytime you buy something. You can buy and sell risk and time, for money. These may be intangibles, but they still have value.

> But for someone to make money, another's got to loose.

That's not really putting it well. For someone to buy then another has to sell. If you're selling just as they're buying then you're not losing.

Well by that logic all trades are bad since someone always loses money.

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