[jwasbury]

Willem Fick has taken the time to type it out clearly.

HFT don't have inside info...they just have the capability to act faster on the same info that is available to all market participants. They co-locate their servers next to the exchange servers and pay to have hard wired local network connections between them so they have the lowest possible latency.

And, as Willem correctly noted, exchanges today pay a rebate to "price makers" (those who provide liquidity to the exchange) and charge a fee to "price takers" (those who take liquidity from the exchange). The HFTs are typically liquidity providers/price makers, so they get paid rebates from the exchanges.

The maker-taker pricing is not a new thing. It was introduced in 1997 by Island ECN as a way to attract liquidity away from the primary exchanges. The advent of competition in the exchange space has lowered the cost of trading, and along with HFT activity has lead to tightened Bid-offer spreads.

If the argument against HFT is that it's not "real" activity and is detrimental to John Q. public retail investor, I don't see how it's any different ("less real") than specialist firms stepping in to provide liquidity and "price support", or an underwriter stepping in during an IPO to support a price if market demand is otherwise not present.