HFT firms are make money by taking a spread, which is effectively the cost of making a single trade. As they compete and get better and better at there jobs, this spread well be reduced, the amount of money available to pay for the best and brightest programmers will come down, and they'll suck fewer of them away from other parts of the economy.
The point being, the further they go past this 'point of diminishing returns', the less money they can possibly make. To the extent that HFT is a zero sum game, there will always be a limit on how much money they can spend.
(I believe but cannot prove that this limiting effect has already started, HFT firms are consolidating and making thinner margins than they used to)
That's a good point, but would that happen quickly enough to undo whatever brain drain problems the industry creates?
Nearly all hedge funds still take 2/20 for example, and their returns have been questionable for a decade, so idk we have reason to have faith in high finance's ability to self correct.
HFT firms are make money by taking a spread, which is effectively the cost of making a single trade. As they compete and get better and better at there jobs, this spread well be reduced, the amount of money available to pay for the best and brightest programmers will come down, and they'll suck fewer of them away from other parts of the economy.
The point being, the further they go past this 'point of diminishing returns', the less money they can possibly make. To the extent that HFT is a zero sum game, there will always be a limit on how much money they can spend.
(I believe but cannot prove that this limiting effect has already started, HFT firms are consolidating and making thinner margins than they used to)