Market risk isn't the only type of risk. Many businesses in other industries don't have market risk, that isn't abnormal. Even businesses that you would expect to be exposed to market risk aren't, since they hedge most or all of it.
There's operational risk, like what brought down Knight Capital, that's a type of risk. Or the risk that you will be put out of business by competition because you were too slow to innovate while burning through all your cash runway. HFT firms face the same risks that other types of businesses face. Smaller HFT firms fail often, and larger firms tend to stay around (although sometimes they also fail and often they shrink), which is similar to many mature competitive industries.
> given how they act they don't seem to be providing measurable liquidity
I'm not sure "How they act" should inform one's perspective on the empirical question of whether or not they are adding to liquidity. There is a lot of serious debate and research that has gone into that question.
How they act is the hyper focus on first to market. HFT wants to have the first buy or sell order at price X.
Being first to market does not impact liquidity availability. After all someone else has an order at that price already.
My points about risk are beyond going long or short for a meaningful amount of time (certainly not seconds, probably not minutes) trading quickly isn't hugely impactful on end users. Thus all of the downsides of trading quickly aren't reducing risk for them.
There's operational risk, like what brought down Knight Capital, that's a type of risk. Or the risk that you will be put out of business by competition because you were too slow to innovate while burning through all your cash runway. HFT firms face the same risks that other types of businesses face. Smaller HFT firms fail often, and larger firms tend to stay around (although sometimes they also fail and often they shrink), which is similar to many mature competitive industries.
> given how they act they don't seem to be providing measurable liquidity
I'm not sure "How they act" should inform one's perspective on the empirical question of whether or not they are adding to liquidity. There is a lot of serious debate and research that has gone into that question.