If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1]
The question is: Does fast trading provide a net positive to society?
Real investment decisions - as in, decisions of which factories to build, which products to develop, who to hire, and so on - are made on a time-scale of weeks or months. Having the stock market react on a sub-second time scale certainly has no effect at all on those decisions.
To gain some perspective, consider if trading operated on an hourly-auction type system. The stock price would react slower and in a different manner that it does today, and that could change the income distribution among traders. But honestly, why should anyone care?
When it comes down to it, there is no upside to trades going that fast to anyone outside of the myopic circle of professional traders. Even those professional traders only have an upside as long as they participate in a vicious arms race. However, there are downsides.
One downside that many people argue is that the resulting distribution of income is not just, because HST firms suck a revenue stream out of the economy without building anything real.
The more important downside (in my opinion) is that HST sucks intelligent people away from sectors of the economy where they would positively contribute by developing and improving directly useful technology.
Why do you assume that those intelligent people would not engage in some other little value add activity that can make them a lot of money. How much value add do most web social startups provide? The main feature of capitalist economy is that it allows people to work on whatever they want and not on something that some higher authority deems to be "useful"
The main feature of capitalist economy is that it allows people to work on whatever they want
Completely off-topic to the original discussion, but assuming that you intended to imply the quantifier that I think you implicitly intended to imply - i.e., "all people", or even "most people" - you must be living in a completely different world and/or a very cushy bubble. [1]
I expect many people on this site are lucky enough that they can work on whatever they want - either because their interests happen to align with what's currently in demand by the market (as in my case) or because they were lucky enough to be born to rich parents or win the startup lottery.
But take a step back and look outside of that world. Consider, for example, the many people working as cashiers or cleaners. Do you really think that all or even most of them work those jobs because that's what they genuinely want to do, given a choice? It seems much more likely that the main reason why most of them work in those jobs is that they have to make ends meet somehow, and those are the kinds of jobs available to them.
As for the more on-topic part...
Why do you assume that those intelligent people would not engage in some other little value add activity that can make them a lot of money.
I don't. There may be other talent-wasting sectors in the economy (and I guess you always get some geniuses spending their time on whatever the equivalent of card counting of the day is). I have simply pointed out that HFT is one of them (and I do believe that finance in general is the worst offender at this time).
[1] If you intended to imply the quantifier "some people", I apologize for my misinterpretation - though in that case, I would wonder what the point of the statement was. Certainly it doesn't help paint capitalism in a positive light, because every economic system allows some people to work on whatever they want, while the rest tend to have the same superficial choice of job that they do in capitalism. (E.g., you were not simply assigned a job in communism either.)
There is no money in doing really useful things. As long as that's true, lots of smart people will instead find debatably somewhat useful things to do that pay more money.
As opposed to what? We know that fast trading is being judged against non-fast trading. Are you asking us to judge webapps as opposed to non-web apps (for which anyone could give you a detailed response), or are you just trying to insult webapp developers?
> Are you asking us to judge webapps as opposed to non-web apps (for which anyone could give you a detailed response), or are you just trying to insult webapp developers?
I'm (I would have thought quite obviously) wondering aloud if everything we do needs to provide a net positive to society.
> The question is: Does fast trading provide a net positive to society?
Why is that the only or most important question? How do you even define "a net positive to society"? Are we talking about utilitarianism, and if so, are we trying to maximize the total utility, or the average utility, or perhaps the minimum individual utility? Does my eating a candy bar provide a net positive to society? And even if something can somehow be shown to not provide a net positive to society by some metric, should it therefore be prohibited by the threat of violence (i.e. made illegal)?
Firstly, the people who run/own those markets make money on every trade (i.e. ever buy/sell) so they'll make money if the market is going up or down.
Secondly those manipulating the market will be in the know so they'll be in a position to take money away from those people/organisations that are on the outside.
You only have to go back to 2007 to the GFC to see how easy it is for impotent governments and greedy bankers to screw the world.
Do you think any of those corrupt GFC bankers are suffering now?
[1] http://21stcenturywire.com/2013/04/24/white-house-attacked-o...