But... now that I've examined the facts, I admit what you say may be true. Are HFTs really operating in sub-microsecond time for trades nowadays?
Tl;dr even if trades happen in ms, you still care about us.
And the crazy expensive switch is guaranteed to be the cheap part. Now add the all the ip required to make that fpga smart enough to place orders, and you're talking huge bills in dev hours and third party licensing.
http://www.bittware.com/fpga-dsp-applications/applications-s...
Want to work in that field? Know VHDL/Verilog, Linux, networking down to the wire level?
The "serious dough" part is a little harder to quantify. I've not looked into NASDAQ specifically but server colocation is usually on the order of a couple of thousand dollars a month. This is a drop in the bucket compared to the real costs of a professional trading outfit (namely employees and margin/risk costs).
Anecdotally, it's also almost exactly what I paid for a tier 1 co-located server at my first job in a startup during the first dotcom boom.
No one was happy about it, but it was part of the job and considered reasonable volatility for a portfolio of our (middle) size. While I wasn't a fan of Consz's tone, his numbers check out from my personal experience at a trading firm. Not HFT, but in the end it's all about return on capital and the P&L's should be similar.
So for instance, I've worked on systems that were "fairly" latency sensitive (~tens of micro seconds in latency budget), not very high volume (100s of trades a day) and had virtually no human interaction. I've also worked on systems that were "not very" latency sensitive (co-lo'd but never actually measured tick to trade times, which were assumedly in the tens of milliseconds), high volume (10s of thousands of trades a day) and had a team of clerks looking over it.
I would call both of those systems HFT systems, but some people wouldn't consider either of them HFT.
In both of those cases a 130k loss would be an outlier, but not a phenomenal one. I've worked with people who have lost millions of dollars in seconds and it blew up the group. I've met others that million dollar swings on a given strategy was par for the course (and there hedge funds doing manual trades that won't notice that trade in a graph).
That is, the world of computerized trading is pretty varied. If you are going to say someone is or is not HFT, let them know what your definition is first, as that is the only way the discussion can move forward.
I'm skeptical that there are really that many players out there who are in a position where a single microsecond would really make a difference. There are definitely companies out there in this situation, but not many.
A single strategy is easily capable of losing that much. Any bond futures or cash bond strategy post-FOMC. Any equity index futures strategy during Twitter "flash crash". Any strategy taking large size in a big future during early-mid October this year. Any strategy taking large size in a big future during August 2011. Any Nikkei futures strategy right after the recent QE announcement from Japan.
All of those are easily capable of dropping 130k in a day.