In any market, people closest to the trading develop a feel for the nuance of that market, which can give them an edge. That edge now resides with people who not only have the fastest computers, but also know what questions to ask of their data resources and analytic tools as markets change. Their computers spot patterns with algorithms and pass the insights along to their human masters. Those humans, by virtue of their deep knowledge of exchanges, latencies, and the behavior of other players, know what types of questions to ask. Their computers find the answers, complete with probabilities and risks, and trade them algorithmically.
Is this illegal? Not under current regulations. Is someone front-running by breaching their fiduciary responsibility as a broker and using knowledge of customer orders to profit at their customer's expense? Not always. If a high-frequency-trading operation invests heavily in technology to sniff out predictive patterns across the exchanges and take risks with its own capital, it isn't front running. It is seeking a positive return on its own investment in big data and analytics, which firms such as Amazon have done in other industries and newer entrants have begun in online advertising auctions. On the other hand, if a firm benefits by trading its own "proprietary" capital on the basis of order flow from its customers and to their detriment, it is, by definition, front-running.
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How do we improve market conditions for all investors? Quite incredibly, with additional transparency.
What if the entire data trail of the stock market were available to everyone after the end of the trading period, such as a day or a week? Information technology disrupted the old way of trading in the last century by making markets more transparent and reducing the edge held by floor traders or market makers. However, somewhere along the way, technology coupled with regulation and market forces that fragmented the stock market started to increase the complexity of trading to a point where few people understood it, let alone knew how to regulate it. We have found ourselves with complicated, fast-moving markets whose regulations were developed for a different era of trading and that have had consequences that were not anticipated. The current HFT powerhouses seized on this opportunity and kept it under wraps while advancing their analytical capability and creating a proprietary advantage.
There's nothing wrong with this in competitive markets as long as they don't engage in front-running. It is useful to note that HFTs provide a service to the market, namely, some additional liquidity, which has arguably reduced costs of trading for the small investor.