I think that the retail investor is actually slightly _better_ off with these ultra high frequency boxes around. These HF guys are market makers, same as the old floor specialists. Rather than paying $1/8 or $1/16 for the spread, we now have reasonably liquid, tight spreads. Retailers were always getting “screwed” by market makers in the same manner, its just that now those market makers are computers.

Is it really so surprising that things have gone this way? I think we all agree that there is some benefit to being the first to place/replace orders as the market moves. Before, this was done by guys on the floor giving each other the nod and wink. Now, those guys have all been beaten by computers, and perhaps unsurprisingly, the institutions making the biggest investment in technology (low latency colocation, high performance code) are the ones to benefit most. Say what you will about Goldman Sachs, but at least they aren’t sitting around waiting for the next innovation to make them obsolete (bye bye Bear/Lehman).

“They are coming from you – the average retail investor and the large institutional investor. These programs are taking advantage of real order flow and are siphoning off small profits throughout the day that belong in the pockets of the retail investor and the traditional money manager.’

Such comments are ridiculously silly. People who get consistently out-traded, rather than admit their incompetence [at least on a relative level] like to whine about the ‘big guys,’ ‘the Gubmint,’ the Fed, the mean ol’ HFs and RenTech keeping them down. You’re not as good, but are unable to admit it to yourself for whatever psychological reasons.

There’s no difference btw you, a mutual fund, or a quant shop buying stock in IBM or JPM. None. There’s no difference btw any of the above selling. If they get a better price — that’s their skill and your lack of it.

Alpha, or ‘profits,’ belong to no one. They belong to whomever gets their first and exploits them. If you put in your limit order at $20 and their automated traders buy it first at $20.01, that’s your decision to let that happen, you could have bought at the market or at $20.02, or $20.05 or etc.

Note also the intellectually bankrupt sillyness of pretending that faster trading necessarily = profits. There are ANY number of quant shops that blew up over the past 2-10 years that show differently. Then the alpha was captured by the traditional money managers and retail investors: August 2008 was quite telling in this regard, many sharp investors simply bought all the stocks the quants were puking up and profited handsomely.

If your goal is actually to curtail liquidity, well, then virtually anyone can see the giant gaping flaw in your thought process and understanding of markets. You’re probably in favor of anti-shorting rules as well.”