The rise of technology-greased high frequency trading, which has definitely caught the eyes of regulators and Congressmen, has given rise to a debate about whether such trading is good for the average investor. 

One viewpoint is articulated somewhat emotionally by a MarketWatch columnist: "Wall Street's again racing at hyperspeed, gambling with the money it conned from taxpayers, using it to skim more from clueless investors. First the Fed and Treasury, now Wall Street's 'Too-Stupid-To-Fail' banks are stealing from Main Street 's 'Too-Dumb-To-Stop-Trading' investors." He adds: "Worse yet, if America's 95 million individual investors do try to play this new game against these HFT-Quants, they will lose big."   

His main point is that "HFT-Quants virtually created this 'Singularity' where computers exceed human intelligence, where the quants' superpowered math algorithms far exceed the primitive human intelligence of the average Main Street investors." In this view, our brains just can't compete. 

This has a lot of rhetorical appeal, but the reality isn't so cut and dry. Are retail investors really made worse off? Well, if they try to day trade the markets, they'll likely lose their shirts, but that was true even before high frequency trading really took off. Retail day trading has always been tough, if not impossible over time, to win at. 

Many have noted that high frequency trading in some ways is good for the market. Certainly, it has been a tremendous source of liquidity. The likes of Getco, Citadels and Tradebot can be seen as market makers of sorts. Rishi Narang, author of "Inside the Black Box," says they helps the market tremendously. Someone's got to take other side of trades. In a sense, they've acted like market makers, except with a lot more capital. And that reduces volatility. Retail investors also win via smaller spreads and faster executions. 

This isn't to suggest that the high frequency trading infrastructure can't be gamed. Narang was recently asked if high frequency trading techniques can be used for front-running. His answer: "It's possible. It really comes down to how people are using them. Computers are no different than other types of tools. They can be used for good or bad," said the expert in quantitative trading. This may or may not strike you as persuasive. Some people believe that "Guns don't kill. People do.'' Others don't agree. But it's fair to say there will always be the human element in trading, no matter how good the algos get. 

An easy argument to make here would be the massive insider trading scandal that was just exposed, involving non-quant hedge funds and lots of willing insiders, had done much more harm to the markets than high frequency traders. 

That said, no one should fear a government review of all these practices. Some may need some tweaking, like flash orders. Hopefully, we'll end up with stronger markets. - Jim