There’s been a spate of stories about the troubles of high-frequency trading firms. This is no temporary downswing. The factors that allowed successful firms to trade actively for a decade with seemingly no losing days are gone and there’s no reason to expect them back. Nevertheless, HFT will be as important a force in the market in the 2020s as it was in the two previous decades.
The key is to realize HFT is two things: latency arbitrage and liquidity provision. Latency arbitrage means getting an advantage by being faster. When an order comes to market at a good price, the fastest trader to take it wins. When prices move, the slowest trader to stop taking orders loses.