Why Do High-Frequency Traders Cancel So Many Orders?

The issue of high-frequency traders who cancel a lot of their orders seems to have been in the news a bit recently, so let's kind of reason it out from first principles.

There are different kinds of "high-frequency traders," but many of them are in the business of what is called "electronic market making." A market maker continually offers to buy or sell stock, whichever you want. So the market maker places an order on the stock exchange to buy 100 shares of XYZ stock for $9.99,1444316929067 and places another order to sell 100 shares of XYZ for $10.01, and you can come to the stock exchange and immediately sell to the market maker for $9.99 or buy from it for $10.01. If you sell for $9.99, and then someone else comes along and buys for $10.01, the market maker collects $0.02 just for sitting in between the two of you for a little while. Whether the market maker is necessary, or worth the two cents, is a hotly and boringly debated question,1444335993024 though it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors.1444332112291