It's not only about bid-ask spreads; I find this a gross oversimplification of what HFTs bring the market.
Other things:
- Prices around the world across all exchanges are kept in line. If you need to hedge your Yen exposure and can only trade in Europe, you will get the closest possible price as someone in Asia or the US. This is true across all asset classes. This lack of massive arbitrage may get a lot of investors/hedgers/speculators significantly better prices.
- Derivatives on almost any asset are similarly tight as their underlying assets. No longer are you crossing wide/illiquid markets to hedge back month products or options. In a lot of markets, you can trade tight/liquid markets at almost any tenure; this is potentially a LARGE cost savings particularly compared to what some of the markets looked like a decade ago.
- Stat Arb + Relative value spreads are kept in line with their variance structures. Stocks move in line with their eigen components, options move smoothly with their volatility structures, futures at various tenures are priced in line with their synthetic interest rate exposure. Without being able to accurately price something, most participants are able to get a 'good' price on almost anything.
While a lot of the HFT is indeed zero sum between firms, the net economic effect of their activity is certainly not. The amount of $ that most firms make from the HFT business is really not that large; most of the big trading firms have made their fortunes from large speculative/fortunate events, not from being the best at constantly collecting a 1/10th of a tick of edge over and over.
Other things:
- Prices around the world across all exchanges are kept in line. If you need to hedge your Yen exposure and can only trade in Europe, you will get the closest possible price as someone in Asia or the US. This is true across all asset classes. This lack of massive arbitrage may get a lot of investors/hedgers/speculators significantly better prices.
- Derivatives on almost any asset are similarly tight as their underlying assets. No longer are you crossing wide/illiquid markets to hedge back month products or options. In a lot of markets, you can trade tight/liquid markets at almost any tenure; this is potentially a LARGE cost savings particularly compared to what some of the markets looked like a decade ago.
- Stat Arb + Relative value spreads are kept in line with their variance structures. Stocks move in line with their eigen components, options move smoothly with their volatility structures, futures at various tenures are priced in line with their synthetic interest rate exposure. Without being able to accurately price something, most participants are able to get a 'good' price on almost anything.
While a lot of the HFT is indeed zero sum between firms, the net economic effect of their activity is certainly not. The amount of $ that most firms make from the HFT business is really not that large; most of the big trading firms have made their fortunes from large speculative/fortunate events, not from being the best at constantly collecting a 1/10th of a tick of edge over and over.