"There is a common misunderstanding, even among practitioners, that low-latency trading is a waste of human talent and resources that could instead go to advancing physics or curing cancer. It's been attacked by books like Flash Boys, governments trying to pass transaction taxes, and exchanges bending to pressure by implementing speed bumps or periodic batch auctions. This essay argues the positive case for HFT and latency competition based on four main reasons: (1) Low latency trading lowers spreads, (2) Economically significant things do happen on sub-millisecond time scales, (3) HFT is the optimization layer for capitalism, and (4) Markets are not a zero-sum game."
Contrarian thinking for today.
"Latency is equivalent to time to expiry for a market maker. The longer it takes them to hedge an executed quote, the more risk they are exposed to, and the wider the spreads they will need to charge."
"HFT breaks feedback loops in global supply and demand negotiation by propagating information more quickly and using short term predictive signals to untangle causality."
"In the context of capitalism, HFT serves as a low-level optimization layer in the global price discovery process."
"Almost all competition looks like it's winner takes all when you define the space of competition in a narrow enough region, but if you look big picture it's never that simple. HFTs are diverse. A one nanosecond speedup in one component doesn't allow anyone to take the whole market."
Opinion: Rationalizing latency competition in high-frequency trading
