Insurance is an apt analogy. Intuitively, if someone consistently makes money, they're just skimming without providing any value. People were astonished that Virtu made money almost every day, but wouldn't care if GEICO made money almost every day.
In statistical expectation, you are better off not selling your stock to an HFT market maker. They are only buying from you, on average, when the spread you pay is more than they expect the stock to move. You could wait and sell to someone else for a tiny bit more, on average.
In statistical expectation, you are better off not insuring your car. The insurance company writes the policy such that their expected payout over its lifetime is less than the premiums they collect.
But real people don't live in the world of maximizing expected value. The guy selling his stocks is doing it a couple times a year, and doesn't want to risk losing a few % if the market gaps down, just to make a tenth of a penny more in expectation. Nobody wants to take out another car loan if their shiny new SUV gets hit driving out of the dealership. Bearing risks people don't want is valuable.
So bizarrely, while these services may satisfy a need, consumers are only really happy when the provider loses. Nobody looks back on decades of crash-free driving reminiscing about paying those insurance premiums. Nobody likes to sell stock and see it tick up.
(And I'm hand waving assuming you're a randomly selected trader or driver. If you have inside information, trading with anyone is positive EV. If you drive drunk at 100mph but have no tickets or DUIs on your record, insuring your car is positive EV.
I'm also hand waving away comparative advantage. That better price an HFT market maker gets when turning over your trade may not be achievable for you. Maybe they can trade on more exchanges or predict prices better to get out at the right time. They do this all day so trading optimally is not a waste of their time, but it's probably a waste of yours. In that case, you may lose more and take more risk doing it yourself. I think that's closer to reality.)
> you are better off not selling your stock to an HFT market maker
You are also better off selling into a market containing at least on HFT market maker. Without them, spreads become fat. It is notable that the principle aggressors, at the political level and until recently, when HFT became an armchair economics term of art, against HFT were the old line market makers.
In statistical expectation, you are better off not selling your stock to an HFT market maker. They are only buying from you, on average, when the spread you pay is more than they expect the stock to move. You could wait and sell to someone else for a tiny bit more, on average.
In statistical expectation, you are better off not insuring your car. The insurance company writes the policy such that their expected payout over its lifetime is less than the premiums they collect.
But real people don't live in the world of maximizing expected value. The guy selling his stocks is doing it a couple times a year, and doesn't want to risk losing a few % if the market gaps down, just to make a tenth of a penny more in expectation. Nobody wants to take out another car loan if their shiny new SUV gets hit driving out of the dealership. Bearing risks people don't want is valuable.
So bizarrely, while these services may satisfy a need, consumers are only really happy when the provider loses. Nobody looks back on decades of crash-free driving reminiscing about paying those insurance premiums. Nobody likes to sell stock and see it tick up.
(And I'm hand waving assuming you're a randomly selected trader or driver. If you have inside information, trading with anyone is positive EV. If you drive drunk at 100mph but have no tickets or DUIs on your record, insuring your car is positive EV.
I'm also hand waving away comparative advantage. That better price an HFT market maker gets when turning over your trade may not be achievable for you. Maybe they can trade on more exchanges or predict prices better to get out at the right time. They do this all day so trading optimally is not a waste of their time, but it's probably a waste of yours. In that case, you may lose more and take more risk doing it yourself. I think that's closer to reality.)