That's rather simplistic, not to mention completely wrong. US markets are highly visible (you just saw a free visualization of HFT activity since 2007), very tightly regulated and well controlled. Things go wrong, as they do in all complex systems, but rarely do they go wrong to the extent that ordinary investors are harmed.
Read this, before jerking your knee any further. Think of it as turning on the bedroom light, showing the monster in the corner to be nothing more than a pile of clothes:
Financial markets have been moving towards zero latency trading since their inception. First, men gathered under trees or in coffee houses, within shouting distance of each other. They fought over the best spots. Then, traders became some of the earliest adopters of telegraph technology, running private lines from remote cities to the exchanges. Ticker tapes appeared in distant offices. Computerized price dissemination followed, together with electronic trading connections to the exchanges themselves. All in the name of getting information and acting on it before the next guy. It's the reason you, as an individual, can trade global markets cheaply and instantly. It helps you take control over your retirement and savings, rather than paying through the nose for some managed scheme where only a privileged few can access the markets.
Where is your arbitrary line where progress stops?
I think you are arguing something different than I. I am open to being wrong, but I think I am making a different point.
You are saying that by having a zero latency trading capability, financial markets are the sign of progress and it is an inevitability that, not only is desirable, but preferred.
That's fine, but not what I am am taking issue with is fully automated system of extremely high volume, low margin, trades that are conducted by bots and have no human interaction other than those that are profiting from them.
I admit I am not savvy enough in this area to argue about whether or not HFT provides more equilibrium to the price of a stock, but I don't see that as a wholly convincing argument as to why HFT is important and adds value.
I am skeptical of that claim, mostly due to my ignorance, so please educate me on the following: The claim that HFT rarely goes wrong such that "ordinary investors" are harmed; who then is the non-ordinary investor who is benefiting from the HFT, and what value are they providing in the markets, other than profiting from HFT.
It appears to be making the claim that HFT is a meta market that the ordinary investor shouldn't even be concerned with except in cases of extreme rarity where a flaw causes them some financial harm/risk.
Again, if this is true - what true concrete value to the world does this meta system provide? I simply cannot see it, and again, I claim awareness of my ignorance, so please explain like I am five.
> ...and what value are they providing in the markets...
It used to be that if you wanted to buy a book you would have to wander around town until you found a place that had chosen to stock it. If it was an obscure or specialist book you might have to drive to a different town. You might just be shit out of luck. Nowadays you search for the title on Amazon and it shows up at your door the next morning. When you are done you can sell it again on Amazon with minimal hassle. Amazon improved the efficiency and liquidity of the book market which is why they are rich, even though they are charging less overhead than the bookstores.
Your local corner store doesn't create anything. All they do is buy from manufacturers and sell to you at a markup. But you don't care about spending an extra few pennies when its 6am and you're out of milk. You just want breakfast now.
Liquidity providers make it easier to buy and sell financial instruments whenever you want. HFT enables firms to provide liquidity more efficiently and with less risk. Just like Amazon, they get rich by saving you money.
Hav you not noticed the banking scandals in the past few years? Have you not noticed that NOTHING has been done about them?
Also, if you look lower down the thread - I stated that a moratorium on bot based HFT should be put in place until we can fully understand how to regulate these properly.
Equating me with dictatorial banning of cyptographics is ridiculous.
Yes, if the spread narrows enough [1], then the 'price' becomes something like a stochastic process that bumps around in real time depending on the instantaneous balance of supply and demand. This is probably better for the average market participant, compared to the old situation of demand piling up at quarters or eighths, and larger trades taking place at more infrequent intervals (with wider spreads and larger commissions for brokers and dealers). Price improvement and faster order fulfillment is the average case, but it doesn't make headlines because it's not dramatic and politicians and regulators can't drum up popular support against it.
Certainly, brokers' commissions have come down significantly through price competition (empowered by automation of trading). This is generally a good thing for a free market. Some broker-dealers may disagree because it's grown harder and harder for them to be the middleman and collect fees.
[*] $0.01 is the minimum because sub-penny pricing is disallowed for 'most stocks' on 'most trading venues'.
Maybe we need much tighter rules around how the trades can be made.
I have no clue at this point what the model should be - but HFT is something that is completely undoable for a human, though it can have impact on humans at large scale and should be thought of more critically before they can be deployed into production.
I say impose a moratorium on all HFT until a determination of their value, impact, risk etc can be done and published and debated widely.
without it, investors would not be easily able to change their minds about how much other investors think wildly complex financial instruments are worth!
What I've heard, and this is almost worse than anecdotal evidence, is that HFT helps stocks converge on their true 'value' or 'equilibrium' much faster.
This could, of course, be utter bullocks, and I have no way of tracking down the source, but it's at least an interesting idea.
What value is there in any system where trades over "pennies millions of times per second" is provided at all to real world conditions/humans.
This is simply a tool by a few to make money in an invisible, unregulated and uncontrollable space.
This is simply not sane.