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"The Lie Of "High Frequency Trading" Liquidity

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This is really well explained and worth your time reading the whole article.

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The Lie Of "High Frequency Trading" Liquidity

"..........Let's postulate two HFT computers passing 1,000 share orders for the mythical Frobozz (FBOZ) back and forth between each other.  There's a scadload of volume generated by these transactions, and an outside observer, who is unaware that the 1 million shares are in fact 1,000 transactions of the same 1,000 shares being passed back and forth between the same two guys, might assume that there's a lot of liquidity that has been added.

But this is in fact misleading, as the following example will demonstrate. .....

http://market-ticker.org/archives/1366-The-Lie-Of-High-Frequency-Trading-Liquidity.html

Entry #1,350

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