I think the average investor cares very much about 3% on a particular security. Why throw 3% away? HFT is no more a fad than Google is a fad. It serves a purpose by delivering greater market efficiency than the floor systems it replaced, and maybe it will be replaced by something even better in the future. I would say that the sudden interest in the HFT field is overblown, but that doesn't make it a "fad", any more than Amazon would be considered a "fad" for having been hyped in 1999 (Amazon is still around and doing better than ever).
This crisis proved (or only uncovered) that quants are just nerds who generate nothing but losses. As Nassim Nicholas Taleb said: âWe never had any respect for nerds.â http://en.wikipedia.org/wiki/Nassim_taleb
They're not traders, they're mathamaticians. If you enjoy doing endless hours of stats then you will enjoy this. Also, if you enjoy spending your saturday nights playing dungeons and dragons with your 40 year old friends from highschool that still live with their mothers, then this is the job for you.
If the average investor cares about 3% then they are taking this too seriously! As an investor I aim an average of 25 to 35% return on my equities. Some like Ford are making me 400%, and others like GM cost me money. Focusing on the 3% is focusing on timing and if you as the investor are focusing on timing, then you have too much time on your hands. The reason why I say this is a fad and not like Google or Amazon is because before there was high frequency trading there was something called market making. Market making was to add liquidity to the market and could be construed as high frequency trading. In the early days market makers had an advantage and was a cash cow. Just like high frequency trading. Now I know a few houses just want to get rid of their market making department because it is too expensive for what it returns. It is not worth it anymore... Thus what has replaced them? High Frequency traders. And when the cash cow is dead then High Frequency traders will leave as well. Also in the past when people got shafted on trades it was the market maker. Now it is not the market maker, but the high frequency trader... fad....
I would argue yes and no... Quants build models and fit the world to the model... Algo traders build models and fit the model to the world.... Algo traders are very pre-occupied with statistics, probabilities, etc. Quants are very pre-occupied with building models that recreate price movement and volatility... I would consider myself more of an algo-trader since I really like statistics and probabilities. I could read Hull and understand it. But then when I read (or more accurately looked at the pretty pictures) of "Volatility and Correlation: The hedger and the fox" I thought, ok I want to become an algo-trader... Personally nothing wrong with quants, but they tend to get overly excited with the cute models that they build...
BTW while I might argue that High Frequency Trading is a fad, I have nothing against it. In fact the more the merrier is my motto!!! I don't consider high frequency trading a devil... Actually it helps me with my investments, though I have had to change my investing style.
chris, i'm not sure what ib you worked for, but if they shared your views i can understand why they x'd their mm desk. anyway, there are some things you're unclear about. 1) the bulk of the volume on ANY exchange is primarily market making and its derived hedging _by definition_. who do you think is on the other side of any given trade? 2) most valuation models aren't all that different, so the last venue for competition is the order queue. the quicker an order can get on the book the more volume the firm does the more money it makes. it is _this_ that forms the _bulk_ of high frequency trading. market making and high frequency trading in modern markets are _synonymous_. market makers have been an integral aspect of markets since markets came into existence and as long as we use computers to trade, hft will be integral as well. to say they are fads is like saying driving a car or using a refrigerator is a fad. your statements are truly perplexing coming from someone who supposedly worked on a mm'ng desk at an ib, and really border the absurd.