Doesn't it make more sense to make a firm argument for "why not liquidity"?
Who exactly is funding this expensive and stupid zero-sum game? Exactly what effect does this game have on your 401k? Isn't your 401k invested in index funds? Don't they trade infrequently and in huge, huge blocks? A no-load S&P 500 tracking fund is not HFT'ing the components of the S&P 500.
Doesn't it make more sense to make a firm argument for "why not liquidity"?
Sure. Why not strip clubs? And blackjack? I acknowledged that liquidity has value it's not an end -- it only has value in as much as it provides value.
I don't fully understand who's funding it, but I know the money comes from trade volume, and a big chunk if not the majority of the money on the market is there from institutional funds, 401ks, pensions, etc. Those that are actively managed get nibbled away at. Those that hold for longer (index funds do rebalance) get nibbled away at less frequently.
What's your hypothesis for where the trade volume that they make money from originates? They're just taking money from the rest of the financial industry?
I don't know where to start. I'm not saying you're wrong, just, I don't know where to start responding. And please feel free to mentally append "as I understand it" to each of these.
1. Funds of actively traded securities are nibbling away at you with or without HFTs. Actively traded funds are evil.
2. HFT market makers aren't nibbling at actively-traded funds. They're nibbling at other market makers. Like I said previously: an HFT market maker is bidding the price of liquidity down, not up.
3. Your 401k is almost certainly not invested in a fund whose strategy is passive trading and selling liquidity. Your funds have positions in the market. Passive traders do not take positions. Your 401k benefits (very marginally) from the tightened spreads created by HFTs. The people who don't benefit are day traders.
4. I have no idea what "strip clubs" and "blackjack" have to do with any of this.
Actively traded funds are not "evil." Actively traded funds are the only reason you can buy an index fund and actually expect a decent return. Without active traders, the market would be inefficient, i.e. things would not be fairly priced.
Who exactly is funding this expensive and stupid zero-sum game? Exactly what effect does this game have on your 401k? Isn't your 401k invested in index funds? Don't they trade infrequently and in huge, huge blocks? A no-load S&P 500 tracking fund is not HFT'ing the components of the S&P 500.