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Comment by nickysielicki | Hacker News Reader

last semester a chicago HFT group came to my school (Wisconsin-Madison) and spent a short time trying to tell us why they weren't unethical.

They didn't convince me at all. The gist of what they were saying is that they're merely making the market more efficient. That's such bullshit. The money they're making is surely coming from someone's pocket, and that probably means the middle class day-trader rather than the NYC firms with billions to spend on diversification. Later on in their presentation their tone made me feel that they were so extremely proud of what they were doing. It really irked me.

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More likely their money comes from impatient traders who pay the spread to them. They compete for that spread with other firms like them.

The impatient spread-crosser is happy to be filled and move on to doing whatever it is they do for a living rather than playing trader. You can send a marketable order for a liquid ETF to any exchange in the US and at worst you'll be a tick away from the NAV. You don't have to compute the basket value. You don't have to watch the order books for 500 stocks on 10 exchanges. You don't have to monitor the futures markets or trade in them. One click and someone else does all that work for a penny. How is that not valuable?

What specifically did you find unethical about them?

>and that probably means the middle class day-trader rather than the NYC firms with billions to spend

First of all there just aren't that many middle class day-traders, and they don't trade in very large size. If they were the targets of HFT, the industry would be absolutely tiny.

Second, the small day traders just don't have enough volume to cause significant price impact. They just can't move the market enough for the HFTs to profit off of it.

Third, you'd be surprised at how unsophisticated and careless many huge institutional investors are. And sometimes they're just willing to pay extra to get in or out very quickly.

That's their typical and only way to justify it, indeed. I also feel like they are clueless idiots fighting for small profits and serving a made up ideal of free market. This free market cannot exist because, when left to itself, it collapses. To remedy that, it's government funded and the money that goes into those Wall Street's geniuses is simply taxpayers'.

Aside from firms that have payment for order flow relationships, the US stock markets are basically the pure capitalism you read about in an economics textbook: Low barriers to entry, undifferentiated product (my quote is as good as anyone else's = best price wins), fierce competition.

Maybe it is today, but as soon as it starts to collapse (subprimes and friends), the textbook model has to be saved by external interventions. And so on and so forth. Long term, I doubt pure liberal free markets take us anywhere.

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