I am reading: All About High-Frequency Trading

All About High-Frequency Trading - Michael  Durbin

If you want to know what high frequency trading is all about and what some of the issues are surrounding high frequency traders then this is a nice book.  If you want to set up your own high frequency trading firm this book is not going to get you too far - although perhaps that is too much to ask from any book.

One of the questions touched on this book is - are high frequency traders good or bad for the industry?  That is not a well framed question.  High frequency trader refers to a large class of  traders running many different strategies, and their good or badness is dependent on the particular strategy employed.   The book describes some of the strategies that high frequency traders may use.  Some of these strategies are versions of market making (clearly a good) while other strategies profit at the expense of customer orders (arguably a bad).  Some strategies are stabilizing while others can be destabilizing (read trend followers).

I work with a number of high frequency traders and in general I see them as a positive force for the industry as they provide liquidity into the markets and keep price relationships in line with fundamentals.  Large orders can then come into the market without causing significant price disturbance.  However there is always the fear of the single runaway black box or of black boxes getting stuck in a self reinforcing negative loop.  And the speed at which these negative effects could potentially come into play is concerning.  This is what the industry is still trying to get their arms around.