Imagine two investors sitting at a restaurant table discussing trades they are about to make. The trades they are making will be significant, in the sense that their trades will then impact the value of the stocks they're trading. Meanwhile, a waiter at the restaurant makes a habit of eavesdropping on the conversations of these investors. When he gets the information, he runs to the phone and effects his own, smaller trade.
It's not that the waiter happened to overhear something. The waiter makes it his business to "overhear." The waiter adds no real value. He's a parasite on the people who do add value. The HFT traders are likewise.
What they do is documented in Michael Lewis's Flashboys.
https://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393...
I've heard some crazy shit about how much money comes from adtech to fund blackhat data brokers. Adtech buys hacked databases on underground markets, but more than that they fund supply chain attacks to get highly intrusive adware into popular apps. They frequently buy up applications that have a wide install base on phones and browser extensions, and then on the next update, request maximum privileges and use it to loot as much as they can from user systems.
It's a symbiotic relationship. Shady ad networks are often used by criminals for narrowly targeted attacks (advertise this crafted phishing site to women aged 25-35 in the greater Dallas Fort Worth area who are recently married). Those criminals use that access to obtain more private data which they sell to adtech companies. It's a pretty gross business.
In other news, HFT isn't bad because it's HFT, it's bad because order matching services have a bunch of shady, undocumented order types that are designed to allow HFT firms to specifically extract winnings from retail investors. They are absolutely economic parasites, and no one has any incentive to stop them.
https://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393...
https://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp...