>To me, this form of trading has questionable economic effects in my opinion.
Have you ever actually researched the economic effects, or is that just a gut feeling?
If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
The part about spreads being smaller because machines are making markets is true, but there are important caveats. The one that comes to mind first is that the tight market is only there for small quantities. If you want to trade in size, then you are out of luck.
Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most.
I actually did read about it. Wikipedia alone can enlighten you about respective controversies. I think critical voices sound more reasonable but it is an open question at least. It is still my opinion as stated.
Show me the produce, some say it is liquidity, and I withdraw my criticism.
