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Comment by 542458 | Hacker News Reader

> since you can buy a share of a company you believe in

I don't think this is generally true. Stock trading isn't charity, it's done to make a profit. Almost trading is done on the basis of second order effects, and has been for as long as there's been a stock market. Stocks aren't given value by the company being profitable, they're given value by what other people are willing to pay for them (okay, yes, dividends also factor in, but many companies don't pay dividends and people still assign value to those stocks).

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Well sure it's for profit, but what exactly do we (the society) get if we allow millisecond investments in our companies? Compared to classic, long-term investments.

We gain the same benefit all commerce creates: somebody wants to buy, somebody else wants to sell, both those people make a deal, both those people have fulfilled their wants. The seller is happy because they preferred cash to the stock, the buyer is happy because they believe they can sell the stock for more money later. What difference does it make if the buyer plans to sell in a second or a month?

The common answer will be "liquidity".

The honest answer is probably nothing.

Is liquidity even a real answer? The HFTs only work because the market would be made a moment later. A buyer and a seller already exist. If they didn't, it wouldn't be high-frequency trading. it would just be "trading".

As far as I can tell, it neither benefits us, nor costs us. It siphons off a tiny fraction of money, too small to notice, but large enough in aggregate. Some parasite gets to survive, which is annoying if you look directly at it, but ignorable if you don't.

> The HFTs only work because the market would be made a moment later. A buyer and a seller already exist.

Not at all. If you, for whatever reason, need to sell right now, putting in a market order in an illiquid market can cost you a lot.

It can be discussed how big the contribution of HFTs to market making really is (large companies or exchanges often employ dedicated market makers, I believe?), but the benefit of market making itself should hopefully be obvious.

Sure, liquidity is a good thing. But you only need enough liquidity to make your trade. Adding more provides zero benefit.

If the HFTs only trade when the market is already made (or will certainly be, milliseconds later) then they're not really adding any liquidity. They're just doubling the liquidity which was already sufficient.

> Not at all. If you, for whatever reason, need to sell right now, putting in a market order in an illiquid market can cost you a lot.

Are high frequency traders trading in illiquid markets?

That would be surprising to me, it's not high frequency if it's not high volume, and you open yourself up to larger bid/ask spreads.

Are HFTs taking trades that otherwise wouldn't have happened?

They fulfill different functions. Low trading delays make certain the difference between buying and selling price is low, and reduces differences in price between marketplaces. Both very good for people doing long term investments.

Liquidity, lower volatility, and lower transaction costs, for starters.

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