cawcawparrot

I'll say that what we have today, with computers are making a market instead of the proverbial "Vinny from Brooklyn" on the floor of the NYSE, benefits all parties that participate in the financial market.

You are correct that it is very much an arms race. Every firm must continually refine their algorithms, stay on top with the latest hardware, and use the latest infrastructure techniques.

Firms that operated on a 0.01% profit margin 5 years ago are operating on a 0.006% profit margin today. Many aren't able to keep up, and they wind up losing money.

HFTs mostly market make. Market Making is defined as providing a two-way market in a particular instrument throughout the trading day. In order to earn business, they have to provide better prices and/or size than the other market makers in the same instrument.

So the arms race is market makers, who are constantly trying to one-up each other, fighting to show the best price and size. If you are a small retail investor, or a large asset manager like Vanguard, you benefit in the liquidity provided by these market makers.

For Aggressive strategies (HFT algos which "take" liquidity from the book), sure they can have an influence on price within the span of a few seconds (or even less than a second), but Joe Retail and Vanguard don't give a flying fuck that MSFT stock was .005 higher than it otherwise would have been for 200ms at 1 minute past noon. On the flip-side, competing algos might sniff out the micro-manipulation attempt and fight back, pushing the stock back towards equilibrium.

The arms race of HFTs benefits:

1) Anyone who transacts in equities with more than a 10 second time horizon, and who also likes to save money on transaction cost.

2) Holders of science and math degrees (voraciously recruited by HFT firms)

3) Computer hardware companies (aside from the government/military, finance is the largest consumer of computing power).

HFTs hurt:

1) The "good ol boys" network of Wall Street folks. With the emergence of high tech in finance, it's no longer "who you know", it's "what you know".

Wrong, Dodd Frank is covering several different types of currency derivatives.

What exactly is "out of control" about it?

I'm really sorry, but I work in the high frequency space, and you're totally off the mark. Your answers are wrong, and you speak in generalities and hyperbole.

I'm not sure if it's due to ignorance or because you'd rather shout that the sky is falling to sell more books. Nothing personal, and I don't fault you either way.