Another place people seem to get jumbled up in these discussions is in comparing institutional traders to individual retail traders.<p>A person buying or selling individual stocks for their own portfolio isn&#x27;t impacted by HFT at all. Their orders probably never see a real exchange. Instead, internalizers <i>pay extra money</i> to offer brokerage customers the best possible prices for what they&#x27;re looking to trade.<p>That&#x27;s because HFTs aren&#x27;t the apex predator in the markets. Informed institutional traders like Goldman are. Market making operations are built around mitigating the risk of getting run over by giant block trades from institutions. When those happen, they take out whole swathes of the order book and leave adverse price changes in their wake.<p>An electronic market maker will pay a premium to make safe profits off the spread of retail orders, because to a first approximation none of those orders are going to take out the whole book.<p>Meanwhile, among institutional traders, there are two kinds of firms to look at.<p>The first kind, the Royal Banks of Canada of the world, are getting paid a tidy sum of money to make large block trades for the cheapest possible price. The RBC trader has knowledge that the rest of the market doesn&#x27;t: many tens of thousands of shares of something are about to trade, and that trade is going to move the market. They make money by trying to disguise their intent, so that instead of the market price reflecting that intent, they can capture the premium and leave everyone else in the market to hold the bag.<p>Those kinds of traders <i>hate</i> HFT.<p>The other kind, the Vanguards of the world, buy or sell based on long-term strategies. They&#x27;re buying CSCO or MMM to fill out an index. They want the best possible price, of course, but they mostly care about determinism and low cost of trades.<p>Those kinds of traders <i>like</i> HFT. (You can see the Chief Investment Officer of Vanguard, the world&#x27;s most trustworthy mutual fund company, saying that repeatedly and emphatically). HFTs reduce spreads and make trading cheaper, and Vanguard doesn&#x27;t earn profits by taking it out of the hides of their immediate counterparties.<p>As a public policy matter, I&#x27;m not sure why I&#x27;m supposed to support regulations that increase Vanguard&#x27;s cost of trades so that an equities desk at RBC can charge higher premiums to fleece the markets on behalf of their hedge fund clients.