Sorry, crazy premise. If a particular HFT netted less than $100k/year, I'd be surprised if they kept doing it, and I've certainly heard of HFTs who made in excess of $400k/year.
>There are a vast number of market participants who do loose money.
Irrelevant. It's not about whether people ever lose money, but about whether HFTs add any real value to the market. If no one can give me real evidence that they do, then I say that the rules should be changed to make such trading unprofitable; if it went away, then the people who are actually buying stocks as a medium to long-term investment would make MORE money (on average), or at least lose less.
That seems massively unrealistic to me. It's safe to assume that HFT makes its participants a lot of money, for example because we know that they tend to spend a lot of money on hardware.
They all have revenues. Whether they make profits is another question, but that's not relevant to the point. If HFTs didn't at least have positive revenues from their trades, then no, they wouldn't be buying expensive servers and hiring expensive talent. Money extracted from the market is the issue here, not whether the amount extracted is sufficient to cover costs.
I understand where you are coming from, but investments are not made the way you are assuming.
An HFT investment likely involves someone deciding they want to create an HFT fund, going out to institutional investors and selling them on the idea that THEIR fund will be profitable.
That happens over and over and investors in these HFTs (as well as hedge funds, PE etc. all think they are picking winners who can make it work. Whether they can or not will depend on execution.
Investment in a sector, industry, or asset class does not mean there is net winning from that sector.
At the end of the day, HFT is still competitive since they are bidding against each other (hence the arms race for faster equipment). Even if the market is growing for HFT now, it does not mean it will be forever. At some point it will become mature and all that will be left is net negative HFT profitability with all the benefit going to investors in the form of liquidity.
I am not backing up HFT because I trade in HFT, I do not. I am backing it up because I find it agitating that smart people on HN look at HFT and assume because they are smart, and because they don’t understand it that it must be bad. If something in the market is happening you don’t fully understand it really pays to sit back for a second and think about it.
(I’m guilty of not doing that with a variety of topics too and I do not fully understand HFT, but I understand enough to say that I cannot say with any certainty that it is bad and lean more to saying it is net good.)
This assumption is questionable. There are a vast number of market participants who do loose money.
The best start up example is the bias toward reporting companies who just got funding and not reporting all the companies that hit the dead pool.
We don't really have a good idea on the net of HFT strategies and it is just as safe to assume they net zero.
Lets just say HFT firms did net to zero, would you still have the same argument?