If you need to buy/sell right now, having tighter spreads means that the price is cheaper for you. Your retirement fund, they need to buy/sell right now all the time, to re-balance their portfolio, whether for risk or for benchmark tracking, cash allocations, etc.
Saw your response and I'd offer the following:
A) the advantages that automation bring to the markets impact every single trade there is. Even if we take a very tiny sample of people who need to rebalance their EFTs today. Each day it is a tremendous savings.
B) HFT is a tiny part of the finance industry, yet it has had a huge impact on the cost of trading, to the end result of trading being phenomenally cheaper than it has ever been.
Is that enough of an advantage to outweigh the cost of the small number of intelligent people in HFT? I don't know, but it certainly seems easier to justify than the phenomenal amount of capital spent on internet ads. I'm a bit of a free market capitalist, so my biased response is how else should we allocate people's output?
I don't actually have a sense of how big or small the number is as a percentage of intelligent people. Particularly when you observe that, as you say, HFT is just a tiny part of the finance industry. There are many other parts of that industry that are also sucking up smart people to do things that, to me, have very little value compared to the other things those people could be doing.
> how else should we allocate people's output
Sorry to redirect again, but see my response to pas upthread. :-)
Again, looking at your other posts, I can only assume either A) you socially value internet ads much higher than most people who claim to value social equity over profit or B) you underestimate how many resource we as a society are throwing at internet ads or C) you over value how many resources we as a society are throwing at automated market making. In any case, Google by itself, whose entire revenue model seems to be based on internet ads, makes more profits in a year than the entire HFT industry does.
So it's hard to have the "it's terrible so many smart people are doing X" argument when our society has made it pretty obvious we value selling internet ads as high as any other possible commercial enterprise.
Me, I'll take the other position, which is that yes, the markets are bad at allocating capital, but they are better than our alternatives, and the silly little pocket change inefficiencies that go into speculative market making are a small price to pay for all the advantages of a modern liquid, price efficient market.
How are you getting that from what I said? You could s/HFT/internet ads/ in my post in response to pas and it would be pretty much the post I would have written about internet ads if that had been the subject under discussion. (Well, not really, because you'd have to change other things as well, but hopefully you see what I mean.)
> markets are bad at allocating capital, but they are better than our alternatives
This I agree with. But markets are as bad (or good) at allocating capital as the people who participate in them. In other words, markets reflect the values of the people who trade. I wasn't ranting about markets not being able to properly compensate curing cancer because markets are bad; I was ranting about people's values being so screwed up that the price signals they are sending into markets are making people rich for HFT and internet ads but not for curing cancer.
It's implied by what you didn't say. You don't require technologists involved in internet ads to justify their existence whenever a post about google comes up. Nor when news breaks of a new internet startup being acquired. I'm picking on you a little bit as a proxy for the entire HN community, as there seems to be a bias against HFT and towards internet ads that is a little unseemly.
Further, I'm not convinced you understand the scope of money involved in HFT vs cancer treatment for instance. When Roche bought genentech (a cancer research company) they paid 46 billion dollars for the privilege. Knight Capital Group, one of the biggest players in HFT is worth around 1.4 billion dollars. The market seems to be allocating resources correctly. The PR companies on the other hand...
> You don't require technologists involved in internet ads to justify their existence whenever a post about google comes up
Wow, you've gone through my entire HN corpus to verify that?
> I'm picking on you a little bit as a proxy for the entire HN community
I would prefer that you didn't do that, since I am not a good proxy for any community that thinks figuring out ways to get people to click on ads is a good use of smart people's time and energy. (Btw, I'm not sure that the entire HN community is such a community; a part of it may be.)
> The market seems to be allocating resources correctly
The numbers you give are interesting, but I'm not so much interested in money as in human resources. Genentech may have cost $46 billion, but are they paying smart people enough to get them to do cancer research instead of becoming quants?
Some of this may be a perception problem, as you imply by your comment on PR companies. What data I've seen on where smart people can get paid the most indicates that it's not cancer research. But I'm sure the data I've seen is incomplete; I would love to see more comprehensive data if there is any.
