May 25, 2010
I am surprised that flash trading has not been discredited after the recent flash crash. I ask, as liquidity decreases, is it not apparent that the spread will widen? Though flash trading firms argue that they provide price improvement, the truth is that this is illusory. It may appear that the customer has price improvement of 0.0001 cents but he/she will pay much more as the result of a wider spread.
I can only speak for myself, but I am discouraged from placing passive limit orders in the flash trading environment we have today. There is no benefit to providing liquidity when your order is simply used as price discovery by a flash trading firm.