How High Frequency Trading Benefits All Investors

I am a professional trader, and by almost any definition I operate in the "high frequency" space. First, let's establish that Traders is an authority on the real world of financial markets in the same sense that PC World is an authority in the world of technology.<p>So I've not read the linked article, nor am I going to. But I will say this: HFT does perform a viable, necessary economic function. A well-functioning capital market absolutely requires this kind of activity.<p>HOWEVER, like most mainstream-media memes, what gets talked about / opined on is almost never relevant to what is actually important and/or controversial: in this case, the question of whether HFT creates a two-tiered playing field where individual (read: non-technically-sophisticated) investors suffer at the hands of the "pros".<p>Most arguments against HFT basically say that algorithms are purely predatory and only serve to hurt the performance of large investors. This is naive at best and deceptive at worst; for every share I purchase "ahead of" a big order, a seller has been filled at the price he desired. Every transaction has two sides; you can't just pick one and say they got screwed. The other side has to have done as well as the other did poorly (assuming a fictional frictionless world).<p>The reality is that HFT requires tons of knowledge and a technology budget of seven figures per annum <i>at the barest minimum</i>, and this provides a very real barrier to entry. What should be talked about, but never is: is that ok? Why or why not? What ramifications does it have?

Keep in mind that this is appearing in a magazine that is successful because of the success of high frequency trading and that the article is written by the member of a company that bases its profits on the ability to conduct high frequency trading.

I am somewhat confused by this double-negative: "No serious market observer disputes the claim that volatility would not be higher without the liquidity provided by high frequency traders."<p>The author seems to be trying to say that high frequency traders reduce volatility. But I parse the claim differently: it seems to me to be saying that volatility could only be lower in the absence of liquidity from high frequency traders.<p>As to the rest of the argument, it seems to be structured along these lines:<p>* More efficient markets with lower spreads between buy and sell are good. I think this is a valid claim, but I don't think it follows from the existence of high frequency trading, but rather from more efficient, automated trading systems.<p>* High frequency trading helps supply market liquidity, and this liquidity is good. I can buy the first part of this, and the second part seems mostly true.<p>* Old-fashioned purchasers seem to be annoyed that when they make a large purchase, the price for the last share is higher than the price for the first share, because the market has already reacted to the change in supply and demand. He also makes the argument that were this not so, the sellers of shares would in effect be subsidizing purchasers. His case seems solid enough to me.<p>* But he then makes another claim that seems to contradict it. He suggests that companies with stocks that have low volume turnover are unduly affected by small purchases, and since high frequency trading increases volume, the impact is reduced.<p>* Finally, it seems he would like to claim that because "our nation's equity markets are far fairer, more efficient, more liquid and have lower transaction costs for investors than ever before", high frequency trading should claim a substantial portion of the credit.

I usually hate TL;DR comments, but if someone provided a short summary of the argument here (and for bonus points, a critique of the argument's strength), I would be very grateful.