Seriously, how many times have we discussed this issue on this site and we still get this bullshit. Bill doesn't know Joe is going. He doesn't. Get it through your thick heads.
That was my reading of the article - it seems that either there is a flow of information from the trading events to the fast traders, or the scenario portrayed in the article was very unlikely (though I guess that couldn't be ruled out given how much trading there is). noonespecial's metaphor seems to apply, what have I misunderstood?
He doesn't know with certainty. He can guess that's what Joe is doing, but he could be wrong and be stuck with sheep that he can't sell for the price he intends to ask. Every second he owns sheep is a second he's taking a risk that they'll go down in price, not up.
I've probably misunderstood something, but it certainly seems to be an issue that gets people very exercised. I presume there must be some competitive advantage in being fast, otherwise people wouldn't do it, so surely the only real issue is whether or not the consequence of exercising that advantage is socially advantageous?
From what I've gathered, through methods like "pinging" the market with many tiny transactions in likely spots, Bill can sound out what Joe is doing in the sheep market. Supposedly the market exchange will also "flash" the information about buy and sell orders to the HFT's in favorable network locations a few ms faster than the general public as well. Figuring out that Joe is buying sheep are what all of the "brilliant minds" that are heading into HFT everyone is talking about are doing. They're watching the road for Joe. Also Joe is not a small investor, he's a rancher that buys lots of sheep. Small investors don't place the kind of orders that HFT can attack.
Do note that this metaphor really only applies to the Front Running section of HFT, and really evolved from a fanciful attempt to coagulate network layer and application layer solutions into one magical unicorn fix. (Its kind of more about how tc works in linux than how markets work. :) )