High-frequency trading is a misnomer. It’s actually short-latency trading, a name that makes clearer why it is so unsavory. As Michael Lewis explains in Flash Boys, short-latency traders use a buy order on one exchange to quickly buy that stock on other exchanges before the original buy order reaches the other exchanges. Lewis writes:
The deep problem with the system was a kind of moral inertia. So long as it served the narrow self-interests of everyone inside it, no one on the inside would ever seek to change it, no matter how sinister or corrupt it became — though even to use words like “corrupt” and “sinister” made serious people uncomfortable.
I thought of health care. Our health care system — centered on treating symptoms with drugs you take for the rest of your life — serves the narrow self-interests of those inside it, such as doctors and medical school professors. That is surely one reason its predatory aspect is rarely mentioned.
But I also noticed how poorly Lewis, an excellent writer, describes the problem. “Moral inertia”? No, the problem is not that Person X or Person Y is slow to get outraged. “Corrupt”? No, no one is being paid off to look the other way or vote a certain way or introduce a certain bill. “Sinister”? It’s unclear what that means. Is Lewis just using a fancy synonym for “bad”?
Elsewhere Lewis uses the word predatory, which seems accurate. Short-latency traders preyed on those who sold stock, taking advantage of their ignorance. Of course, no one is forced to buy or sell stock and the loss on one trade is small. But everyone gets sick.