Why do non-electronic stock exchanges (with floor traders) still exist?
For the second part, no most NYSE trades are done electronically. Non-electronic stock exchanges still exist because they used to exist. There are a lot of people in trading firms who grew up with floor trading and don't want to give it up, either because they feel more comfortable with it or because they might lose their job if they went away from it.
The answer is to your question is somewhat complicated. You will be unable to compete with the firms traditionally associated with High Frequency Trading in any of their strategies. Most of these strategies which involve marketing making, latency arbitrage, and rebate collection. The amount of engineering required to build the infrastructure required to run this at scale makes it something which can only be undertaken by a team of highly skilled engineers. Indeed, the advantage of firms competing in this space such as TradeBot, TradeWorx, and Getco comes from this infrastructure as most of the strategies that are developed are necessarily simple due to the latency requirements. Now if you expand the definition of HFT to include all computerized automated trading you most certainly can build strategies that are profitable. It is not something that you probably want to tackle on your own but I know of a couple of people that did go it alone successfully for a couple of years before joining an established firm to run a book for them. In order to be successful you will most likely need to develop a unique strategies. The good news is because that you are trying to deploy a very tiny amount of capital you can engage in trades that larger firms would not because the strategies cannot hold enough capital relative to the firms capital base.  I am the co-founder of a small trading firm that successfully trades the US Equities and Equity Derivatives markets. A couple of things to note is that if you want to do this you should consider building a real business. Having some more smart brains around you will help. You don't need exchange colocation for all strategies. Many firms, including ours, colocate in a data center that simply has proximity to the exchanges data centers. You will need to keep things simple to be effective.  Don't except all the group think that this is impossible. It is possible although as a single individual it will be more difficult. It will require long, long hours as you climb the algorithmic trading learning curve. Good luck. I dont think you understand teh main problem with HFT, they locate the machines next to the exchanges, and make money based on the latency between exchanges. This is not something anyone but them can do. And it is basically cheating the market.  You ever see the scam.. it was in mash, where [Frank Burns](http://www.funtrivia.com/en/subtopics/M*A*S*H----Out-of-Sight-Out-of-Mind-181978.html) got the radio signals early for the games, and would place bets on the games already knowing the outcome for when they were broadcast on official armed forces radio. That is what HFC is. They get the score of the game before you do, and then bet on the game.  and yes they place a lot of orders and cancel them, that isnt to slow other traders but to force more latency on the system, so they can know the scores even earlier. There are still human brokers on the floor primarily due to tradition. Their numbers have certainly dwindled, however, and it's reasonable to expect the number of floor traders to decrease even more as electronic trading continues to grow. A key reason for human brokers, however, is due to privacy. Certain private exchanges such as dark pools maintain privacy for high profile clients and institutional investors, and human brokers are needed to execute anonymous deals in these venues. Even in this region, however, technology is supplanting the need for brokers. I don't believe there is any human-broker-free stock exchange, but Nasdaq and other traditionally OTC (over the counter) exchanges are as close as it gets since they never even had trading floors. "Joke warning: These days, it seems that rogue trading programs are the big market makers (this concludes the joke) Historically, exchange members were market makers. One or more members guaranteed a market in a particular stock, and would buy whatever you wanted to sell (or vice-versa). In a balanced market -- one where there were an equal number of buyers and sellers -- the spread was indeed profit for them. To make this work, market makers need an enormous amount of liquidity (ability to hold an inventory of stocks) to deal with temporary imbalances. And a day like October 29, 1929, can make that liquidity evaporate. I say ""historically,"" because I don't think that any stock market works this way today (I was discussing this very topic with a colleague last week, went to Wikipedia to look at the structure of the NYSE, and saw no mention of exchange members as market makers -- in fact, it appears that the NYSE is no longer a member-based exchange). Instead, today most (all?) trading happens on ""electronic crossing networks,"" where the spread is simply the difference between the highest bid and lowest ask. In a liquid stock, there will be hundreds if not thousands of orders clustered around the ""current"" price, usually diverging by fractions of a cent. In an illiquid stock, there may be a spread, but eventually one bid will move up or one ask will move down (or new bids will come in). You could claim that an entity with a large block of stock to move takes the role of market maker, but it doesn't have the same meaning as an exchange market maker. Since there's no entity between the bidder and asker, there's no profit in the spread, just a fee taken  by the ECN. Edit: I think you have a misconception of what the ""spread"" is. It's simply the difference between the highest bid and the lowest offer. At the instant a trade takes place, the spread is 0: the highest bid equals the lowest offer, and the bidder and seller exchange shares for money. As soon as that trade is completed, the spread re-appears. The only way that a trade happens is if buyer and seller agree on price. The traditional market maker is simply an entity that has the ability to buy or sell an effectively unlimited number of shares. However, if the market maker sets a price and there are no buyers, then no trade takes place. And if there's another entity willing to sell shares below the market maker's price, then the buyers will go to that entity unless the market's rules forbid it." I don't quite understand the NYSE argument that the credit system helps NASDAQ undercut NYSE on pricing and force brokers to trade on NASDAQ. I thought if you were trading a stock listed on NASDAQ, you traded through them and if you were trading a stock listed on NYSE, you'd trade over there. The choice of exchange coming down to the stocks you want to trade more than anything. Are the exchanges also acting as endpoints on trades for securities listed on the other exchange? "I agree that retail looks for orderly markets, but orderly markets have really never existed. Really study market history, and you'll see that markets are more orderly today than they ever have been. The stuff that used to take place was just insane and happened before computers--let alone HFT.  Let me state that, while it may seem like I'm defending HFT, my algos are actually much longer-term and wouldn't be hurt by any of your proposals. I think many of the HFT guys are no better than those three-card monte sharks who used to fill Times Square. But they're just playing the game. They're not good, but they're also not bad; they're just another segment of players. In orderly markets (up and down), they really do add liquidity. When things go awry as they tend to do in the markets, the HFTs step aside. But don't fool yourself--market makers have always done the exact same thing. And also remember that many markets don't even have market makers; traders provide all liquidity.  Here's the thing. Retail investors swarm to the markets when everything is going up and up. They believe they can do no wrong and that prices will go up forever. Then the market gets a bit tougher, retail investors (and most ""pros,"" by the way) start to lose, and then retail investors cry foul. Markets were never intended to be a nice, safe playground for the masses. They were designed for those who dedicate their lives to understanding them. I don't pretend that I can litigate a legal case, operate on someone's brain, or build a bridge. Experts have studied those areas for decades and are quite good at those things. But retail investors have always thought of Wall Street as some sort of ""safe Las Vegas."" In reality, it's survival of the fiercest.  I'll say to you what I say to every one of my friend's who wants me to ""show them a few things about trading"": If you aren't going to really commit thousands of hours to understanding the markets, then stay out. Invest money that you don't need for some time in a few good mutual funds. Keep your debt to a minimum. Don't chase quick profits if you don't understand the game." Humans also coped fine before the advent of computers. Does that mean we should revert back to how things were before they came about?   Anyway you haven't said why HFT is inherently bad. Well, you did make one point at the start but I think it's a weak one.  You said that HFT screws those without access to HFT? HFT system aren't free you know. I could say that me having instant access to stock markets through a computer screws over those who still rely in calling their broker to place an order. Does that mean that trading through computers should be banned? I know you'll probably argue the difference in the magnitude of the capital requirements and that almost everybody has access to a computer but not an HFT system, but where do you draw the line? Should bloomberg terminals be banned? They're out of reach for a lot of investors due to the cost. "Largely, because stock markets are efficient markets, at least mostly if not entirely; while the efficient market hypothesis is not necessarily 100% correct, for the majority of traders it's unlikely that you could (on the long term) find significant market inefficiencies with the tools available to an individual of normal wealth (say, < $500k). That's what frequent trading intends to do: find market inefficiencies.  If the market is efficient, then a stock is priced exactly at what it should be worth, based on risk and future returns.  If it is inefficient, then you can make more money trading on that inefficiency versus simply holding it long.  But in stating that a stock is inefficient, you are stating that you know something the rest of the market doesn't - or some condition is different for you than the other million or so people in the market.  That's including a lot of folks who do this for a living, and have very expensive modelling software (and hardware to run it on).  I like to think that I'm smarter than the far majority of people, but I'm probably not the smartest guy in the room, and I certainly don't have that kind of equipment - especially with high frequency trading nowadays. As such, it's certainly possible to make a bit of money as a trader versus as a long-term investor, but on the whole it's similar to playing poker for a living.  If you're smarter than most of the people in the room, you might be able to make a bit of money, but the overhead - in the case of poker, the money the house charges for the game, in the case of stocks, the exchange fees and broker commissions - means that it's a losing game for the group as a whole, and not very many people can actually make money.  Add to that the computer-based trading - so imagine a poker game where four of the eight players are computer models that are really good (and actively maintained by very smart traders) and you can see where it gets to be very difficult to trade at a profit (versus long term investments, which take advantage of the growth in value in the company). Finally, the risk because of leverage and option trading (which is necessary to really take advantage of inefficiencies) makes it not only hard to make a profit, but easy to lose everything.  Again to the poker analogy, the guys I've known playing poker for a living do it by playing 10-20 games at once - because one game isn't efficient enough, you wouldn't make enough money.  In poker, you can do that fairly safely, especially in limit games; but in the market, if you're leveraging your money you risk losing a lot.  Every action you take to make it ""safer"" removes some of your profit." Also, from personal experience, most banks' internal IT systems are bare minimum to keep working. Outside of trading systems the back office are often on Lotus Notes 99 or similar just because back office is seen as a cost and it's easy to justify not upgrading IT systems.  For sure, if the ROI is right it might get approved but it's hard to overstate how much time of your average back office employee is already spent fighting shitty systems that could be improved with today's tech. It's not primarily more people investing. In the 1980s stock exchanges went from open outcry trading floors where all trades involved actually exchanging pieces of paper to electronic trading. Once that happened, it wasn't long before most trades were executed by computer programs rather than human beings, turning stocks over rapidly for very short-term profits rather than long-term investment, greatly increasing  the number of trades (and also increasing liquidity for the actual investors; it's by no means all bad). Off the top of my head, a broker: While there are stock exchanges that offer direct market access (DMA), they (nearly) always want a broker as well to back the first two points I made.  In that case the broker merely routes your orders directly to the exchange and acts as a custodian, but of course the details heavily depend on the exchange you're talking about. This might give you some insight: Direct Market Access - London Stock Exchange "I guess there are accepted channels for this sort of thing, but I don't really understand why. Couldn't anyone sell them to anyone else at any time in any kind of market? I mean, if I had a friend who was talking the the IPO up, couldn't I have just said, ""Hey Fred, I'll sell you a Facebook share in two weeks time for thirty five bucks"" and be done with it?  Do exchanges provide legal services? Is there a law that says you have to go through them? And even if you *did* have to go through them, why wouldn't multiple exchanges list them instead of just one, and why wouldn't an exchange start listing them from the minute the gun fired (or before)?" You must understand that: So, if you -- the prospective buyer -- are in Waukegan, do you take the train all the way to New York City just to buy 100 shares of stock?  No.  That would be absurdly expensive.  So, you hire an agent in NYC who will broker a deal for you in the exchange. Fast forward 100 years, to the time when instant communications is available.  Why do we now still need brokerages, when the Exchanges could set up web sites and let you do the trading? The answer is that the Exchanges don't want to have to develop the accounting systems to manage the transactions of hundreds of thousands of small traders, when existing brokerage firms already have those computerized processes in place and are opening their own web sites. Thus, in 2017 we have brokerage firms because of history. "You're not making any sort of a persuasive argument why predatory HFT should be allowed to levy a tax on the system. Yes, computer trading is heck of a lot better than paper trading. You're citing an article from 2010 that states things I'm not even arguing against as somehow supporting this ""tax"", the mechanisms of which the author was not even aware of at the time.   There is no valid argument for why this tax is necessary or good for anyone but the firms profiting from it. I'm all for lower spreads and near instant order processing, but that doesn't excuse some greedy prick from scalping my 401k a point or two of compounding interest every year." I was looking at NAT and NAO, NAT owns 20% of NAO.  They trade opposite each other on the price of oil, low is good for NAT, bad for NAO.  In bad times the other company's stock would probably rise, so they could trim excess shares to keep a stable monetary holding.  This would create cash in bad times, in good times they could buy more, creating a floor as well for the other.