To me there seems to be a certain sort of karma in this.
HFT doesn't really add value to anything in my opinion (cue the arguments that HFT somehow adds real value to our society). Yet HFT creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.
To me there seems to be a certain sort of karma in this.
Momentum prop trading doesn't really add value to anything in my opinion (cue the arguments that momentum prop trading somehow adds real value to our society). Yet some momentum prop trading creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.
"Anything of value" is a subjective measurement - you could say that stock markets don't add anything of value, or you could say that they enable more investments, since you're able to liquidate your investment whenever you want.
Trend following, and mean-reversion following (what this article describes) are techniques that counteract the basic human irrational/emotional biases. Ideally, they should prevent bubbles and stop crashes. They make markets more rational.
They don't help with long-term behavior, but they definitely can make markets more rational on a shorter time scale. You can think of HFT market-makers as adding friction to a system. They will generally take positions against the trend, reducing (or maybe just delaying) price impact of the trend traders.
EDIT: I should point out: _all_ market-makers provide this benefit to the market. The difference now is that HFT is automated, and like most forms of automation it has out-competed most manual market makers, for better or for worse. AFAIK, the last bastion of manual market-making is NYSE, where the humans have information and discretionary powers that are not granted to any of the robots.
The profit to the society is from regular guys like you and me not partaking in the scam anymore. Not spending money on it. Distrusting the game. Long term it makes sense: people will start investing long term based on fudamentals vs wanting to get rich quick on hocus locus TA. Short term trading is losers game. You will always loose against HFT.
So instead of doing that, read the companies fundamentals. Learn about their debt levels. Earnings. Read their books. And only then invest with 1-2 year time horizon minimum.
HFT is valuable to the society as it makes the society understand that treating Markets like casino gambling isn't working.
Cue the argument: there are many flavors of HTF trading. Some funds exploit the latency of different trading platforms - I agree they don't add anything to the society. Others offer liquidity - if the bid-offer spread is $1, they will insert bids above the other bids and offers below the rest of offers, making trading less expensive for investors. Yet others specialize in execution - your "dumb" pension fund manager wants to sell $100M of a particular stock, he'll route the order through a HTF broker who knows the "best strategy" to execute the order without affecting the market price too much, so that the fund gets a better price.
"Some funds exploit the latency of different trading platforms - I agree they don't add anything to the society."
Even those are pretty easy to make an argument for. Very specialized firms spend vast sums of money, to make very thin margins, to provide me with a very valuable service. That is, I don't have to venue shop based on pricing oddities, they will arbitrage those away. I can shop purely on fees and features, the things that actually will impact me in the long term.
Not really - that's ordinary arbitrage, not HFT arbitrage. No "actual" investor will profit from the fact that prices converge in 0.1s instead of 1.1s. They just wast hume sums of money building fiber optics on the direct line from Chicago to NY.
As it turns out, the "HFT" version of any trading strategy is _just like_ the "ordinary" version, but faster. You could say that they "disrupted" the older arbitrageurs due to their collective technology R&D.
There are 1000's of trades that occur in that second and not only HFT. Someone will benefit if they just happen to cross the spread in that .1s. If you are unloading 10,0000 shares the speed arbitrage could save you real money.
HFT doesn't really add value to anything in my opinion (cue the arguments that HFT somehow adds real value to our society). Yet HFT creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.