If they're using their edge to reduce the bid/ask spread of the retail customers to a penny instead of the 25 cents or more that it used to be, how is that hurting retail customers?
If that was all they were doing, that'd be fine. But read the book.
Some exchanges have 150 types of orders that are mostly undocumented and unknown to most regular players, created specifically so that HFT can not do what they publicly appear to be doing, or take incentives without providing liquidity, etc. The public price that everybody seems is outdated compared to the private prices that HFTers see, so they can risklessly front-run people because they already know if a price has dropped or rise, etc. All that stuff isn't just fast market-making.
The "public price that everyone else sees" is the same price as the HFTs see. These are available on the direct feeds from the various exchanges, and there's no discrimination against non-HFTs. Anyone who pays for it can get it. It's an equivalent advantage to having a Bloomberg - more data, faster.
No one is arguing that all HFT firms are bad. But the ones who give kickbacks to exchanges to fulfill orders at worse prices aren't doing anybody a service.
Are you referring to decimalization? If so, that doesn't really have any direct relation with HFT. The NYSE famously used to list prices in fractions of 1/8th, and converted to the decimal system around 2001.
edit : coolio, I misunderstood the parent's comment.
I wish there were more debates between HFT/exchange folks with Hunsader out there because I think it would be illuminating. Both sides seem to stand on their soapboxes and shout, but never truly debate the details.
That's a weird article. Nanex of all people is complaining that people are jumping ahead of HFT with negligible price improvements, making the hfts investment in low latency useless.
I mean they pretend its about retail, but the people who lose from subpenny trades are hfts. That's who investor b is, most likely - the fastest HFT.
Personally I believe we should re-decimalize - allow quotes at 0.01 cents. This will induce HFT to focus less on latency and more on price improvement.
