When smart people realized that their scientific interests didn't align with those of any government so they'd better start their own projects. And to do that they'll first have to amass a few billions.

Making markets efficient helps everybody, and historically, has probably been the biggest driver in making earth a better place.

Let’s take HFT for example. HFT firms are the reason that Mom and Pop investors can get efficient execution on the public markets. Compared to the inefficient markets that existed before, they have generated many many billions of dollars to pension funds, mutual funds, and individual investors.

I don’t think it’s possible to overestimate the positive effect efficient markets have had on everyone’s lives, from the richest to the poorest.

The world isn’t a zero-sum game, and markets aren’t either, everyone profits from a good free market.

Ehhhhh. yes. But that glosses over dark pools, some of the shadier exchange infrastructure arbs that go on, etc.

To be candid, I'm fully on the same page as you: what's going on here is no different than what a really good pit trader did from 1800's -> 2000. It's just the digital, semi-invisible version, and because volumes are so large, the money is exponentially larger as well.

But, that's not all the HFTs get up to; a lot of it doesn't hit public markets, or isn't particularly helping w/ efficiency.

Yeah, there are some shady dark pools and order types going around.

In regards to money, I think that decimalization actually really hurt market makers. There has been massive consolidation in the HFT space with most players either going out of business or being acquired. Profits are way down and latency arbitrage is almost impossible nowadays without billions of dollars of trading infrastructure. Profits have dropped by something like 90% in the last 10 years and the super-normal profits now (after consolidation) are just "normal."

The good thing about HFT is that with the right infrastructure, it's (almost) risk-free. The problem with HFT is that the returns don't compound, there's only a fixed amount of pennies that can be vacuumed up. This is in contrast with other non-HFT quant strategies, which can run tens or even sometimes hundreds of billions of dollars in capital and can make over 10% annually.

The story with HFT is the story with any new market. Players get in, make a ton of money. More players get in, now they are making a little less money. Even more get in, and now they aren't making enough money. Then the people not making enough get bought up or go out of business. And now the equilibrium has been reached: everyone is making "normal" money and everybody forgets about them.

And all of this is good, it's the natural market cycle. People like Elizabeth Warren were talking about how unfair HFT was blah blah, but now, no one cares. Fortunately, the entire cycle resolved before the government could get their sticky little fingers on it.

That's a great point. I agree that this will sort of resolve itself, until MIT puts out some new Cat 8 ethernet or some major hardware jumps, the returns start plateauing quickly. When there's such a large barrier to entry, and with only a handful of HFT/DMMs moving the major volumes, that's somewhat of an systemic risk to the tune of a SysAdmin/DevOps guy screwing up a deployment, i.e. what took down Knight Capital

A "dark pool", despite an ominous-sounding name, is just a type of exchange which does not display order prices and sizes. It is something in between of a regular exchange and an auction, better suited for posting and executing large orders. There is nothing shady in it; it helps larger players (like retirement / index funds) to obtain better prices for their large orders.

Yes, not shady, but it totally unravels the argument concerning HFTs helping price discovery. I know the "hey retirement and index funds are doing it, think of the pensioners!" argument is common defense of it, but that's not at all the target audience of DPs. It's liquidity going off exchange, which hurts price discovery, simple as that. Considering how competent trade execution/slippage capabilities are for the types of broker-dealers that would be handling index/ret/pension volumes, that argument is nonsense

Well, dark pools are a counter-HFT measure, of course they have limited price discovery. If you want price discovery, you can go to lit markets. If you want matching without showing your orders, you can put orders to the lit book algorithmically, or go to a dark pool. It's not that there is no choice. And people traded off-exchange like forever, OTC market still exists and predates exchanges.

There's been a lot of lying by multiple banks to customers about the property of their dark pools. Saying they ban HFTs, or categorize them as "aggressive" when actually doing nothing, or having hidden order types for HFTs, etc etc.

Just to be clear, I mostly think that's fine and whatever, who cares, but there has been a lot of deception in the space.

You could just as easily say the best minds of our generation are occupied trying to get people to click on an ad.

You're rehashing a very old, very tired argument.

I could respond by explaining that HFT facilitates liquidity and price discovery, making trading cheaper overall. I could also counter that adtech isn't any better than fintech, or that it's a fallacy to suppose every intelligent person needs to maximize their ethical production in a capitalist society.

But I'm not going to engage in any of those rebuttals. Instead, why don't you take a look at the massive charitable work bankrolled and empowered by James Simons and David Shaw? Take a moment to read through the organizational mandates and scope of research for the Simons Foundation and DE Shaw Research (DESRES). These two men have poured billions of dollars from their personal wealth into making the world a better place in a variety of ways. Both of them explicitly cite cancer research as a core focus - what do you consider more ethical than that?

While we're at it, let's circle back to your specific example. You're talking about sending rockets into space - that's great! I bet you're a fan of Elon Musk and SpaceX then? Are you aware that Elon Musk made his first fortune through PayPal? Do you consider payment processing to be a virtuous industry? Was Musk maximizing his ethical potential by working on PayPal?

Smart not to mention Mercer though!

People (both on HN and at large) seem to believe that HFT is somehow unfair, probably because of Flash Boys or some uninformed NYT article.

But back to the point, unless you believe in communism, then the best way to help the world and add value is to make money. Simply put, if you are making money, you are doing good (there are exceptions, of course and they usually involve the government). It is folly to measure social contribution in any other way (charity isn't doing good, it means whoever you are giving it to is doing good).

People, especially with HFT, think the world and the markets are a zero-sum game. I think the problem people have with HFT is that it doesn't seem "fair." Mom and Pop don't have a co-located server with ASICs churning out latency arb trades so they shouldn't be able to do that either! But why would you expect Mom and Pop to be able to compete in the first place? They probably wouldn't be able to compete with dentists, race car drivers, or scientists, so why should they be able to compete with professional investors?