Here is the problem that I have with this whole "socially useful" line of reasoning: Do we have philosopher kings or benevolent rules who are able to accurately designate social usefullness and ban or allow things on the basis of it? Is facebook or snapchat socially useful? Are hamburgers socially useful? what about french fries? Whether or not HFT is socially useful is irrelevant. Since there is no harm to a long term investor from someone trading 50 millisecond early, etc. , HFT should be left alone to do what it wants to do.
It's not about banning or allowing, it's about counting the true costs and benefits of the trade, not the immediate effects. And you don't need philosopher kings to do this, just basic math and science. This particular article may not make a good case for the harm of HFT, but that doesn't mean there isn't any. And yes, there are serious researchers that are pointing out hidden costs for things like facebook, hamburgers, and french fries. Those things may have demonstrable value, but that doesn't mean the value outweighs the cost or that they are correctly priced. For example, some studies put the true price of a hamburger at around $30 based on the burden put on healthcare and the environment, which are ultimately paid by other people. With perfect information, those costs should be factored into the trade, but they aren't. So, while HFT might have some small benefit to market liquidity as claimed by other comments, I can easily believe there are hidden costs that would outweigh such small benefits. I don't have any evidence to provide in this specific case, but I would support research to investigate whether we are overcounting the benefits or undercounting the costs.
Right, by this logic literally anything might have a hidden cost that exceeds the demonstrable benefit. The onus is on the ones crying wolf to present concrete evidence. Otherwise, we will end up living in Soviet Union or Nazi Germany ( yes yes I know, Godwin's law)
A case could be made that HFT is beneficial to society. The author is incapable of demonstrating exactly how HFT is "bad" beyond just claiming it's "bad". I submit that the speed at which a market can respond to changing conditions is a measure of it's health.
I believe many people would be surprised to learn that they're already engaging in HFT, by way of their pensions at the least. Mom and pop traders have already experienced significant disadvantages with regard to day-trading. Long-term trading is usually best for them.
So you were around a few years ago right? When money for mortgages was easy and people were getting houses left and right, damned if they could afford them. The questionable mortgage-backed securities seemed great on paper. People were buying new houses, the market was humming along. Banks, builders, and anyone else involved was making money hand over fist. What could be wrong with MBS then?
In hindsight, the stupidity of bundling crappy loans for speculation was embarrassing, of course, and anyone not benefitting from the game saw the bubble.
If something looks good on paper, but feels wrong , it means we're missing something. In the case of HFT, it's (quite literally) a breath away from insider trading. Insider trading regulations give the impression that the market isn't rigged. If people lose confidence that they can't trust the market, it will fail. The only way markets work is if they're fair and all the players are playing legally.
