No one is stopping the buyers who can wait a day or two from placing limit orders.
If the HFT firms are earning profits, it is because someone wants to pay them for the liquidity.
If the HFT firms are earning profits, it is because someone wants to pay them for the liquidity.
And whoever wins by 20ns gets rewarded the same as the previous guy who was winning by 21ns. The magnitude of latency isn't rewarded, just coming in first, so more and is spent on less an less absolute improvements, none of which have been relevant to human reaction times for decades.
So why are the HFT firms earning profits? There is no law that says people are obligated to do business with them. There is no law that says people have to buy at the prices HFT firms are selling at and sell at the prices HFT firms are buying at.
It makes no material difference to the profits of a buy and hold investor. If it did, buy and hold investors would not trade with HFT firms.
While for obvious big moves it might be all about latency, most events are more about the quality of your pricing, incorporating correlated information, edge requirement and risk management that decides what you go for and what you don't, and for those smarter trades you usually have microseconds to spare.
To this I would say: grocery stores (which serve as a sort of middleman to a whole host of necessary goods and are clearly crucial to the economy) close overnight without much outcry.
(To be clear, I think grocery stores are far more important to the economy/society than HFTs, but I think your argument for why is poor)
One trading strategy being faster than another does not automatically make it better. This is a common misconception.
One convenience store would likely "bury" another if it were one block closer to its customers than the other. I wouldn't say the food store industry was "really messed up with market incentives" because of it.
A block closer is massively human perceivable, but we're talking about stuff far below human reaction times.
It's like walking into a grocery store and the banana you really want it 1$ and you'll buy. Because that's the price that highly sophisticated middlemen between the store and you have determined to be good.
The liquidity argument is abstract and unquantifyable enough to be used as a fig leaf for the industry. Real investors who are in it for fundamental values, dividends or strategy don't need to sell in a nanosecond. Now that you can sell in a nanosecond your deal is bad, as in the moment you hear of the Volkswagen scandal all the trading algorithms are done with their work already.
You can only sell in a nanosecond because someone else is willing to buy in a nanosecond. And if your goal is to earn money trading in time horizons of minutes or hours or even days, you probably are not equipped to do that as a retail investor.
Why should you have the right to dump VW after the scandal and not someone else? What about an investor that did not read the news until the next day?
> The deal will be incrementally worse as these firms extract value, your price will be the one that all of these firms deemed "meh".
No one owes you arbitrage opportunity. If you think the banana is worth $1, then it is worth $1. Maybe a nanosecond ago you could have bought it at $.999999, but as long as you still think it is worth $1, then what is the problem with paying $1?
If we let go of the mentality to "dump VW after the scandal before someone else" we find ourselves with bad news about VW and new conclusions about a good value for the stock and people buying and selling accordingly after all have ready their morning paper. A small Tobin tax or other technical measures can prevent unethical actors from taking the banana out of your shopping cart and pricing it within nanoseconds.
The supply-and-demand maximalism is a holdover from anticommunist thinking and ignores market distortions like Zillow's real estate buying.