The OP provides a good technical explanation. Unfortunately he fails to mention another closely related term to high frequency which is what makes this type of trading highly lucrative: 'Front running'. See http://en.wikipedia.org/wiki/Front_running .
Front running is illegal, but if you look for successful cases of high frequency trading they are generally tied-to/accused-of front running. And as you might imagine, in order to do front running you need to be high-up on the food chain (i.e. be a market maker)
The missing key about front running in the article is the 'anonymous' bid-ask: "The matching engine takes his order and displays it (anonymized) to all other traders with a data feed." and "She places her orders, and it is again displayed to the world (anonymously) and stored.".
If you have forehand knowledge of the bid-ask (i.e. non-anonymous) the market maker can front-run and with high-frequency make a considerable profit.
Frontrunners have knowledge of specific trades that are about to occur. You frontrun a specific block trade. The definition you imply here suggests that all market makers are "frontrunners".
HFT is not front running. Search comments for my remarks on latency arb - that may seem like front running, but it's entirely different. Latency arb involves information that is publicly available. Front running does not.
My understanding is that front running has been around as long as there have been market makers - and there have been market makers as long as there have been markets.
The practice of placing a large order and canceling milliseconds later to induce an exploitable price movement accomplishes this, sanctimonious protest to the contrary notwithstanding.
Front running is illegal, but if you look for successful cases of high frequency trading they are generally tied-to/accused-of front running. And as you might imagine, in order to do front running you need to be high-up on the food chain (i.e. be a market maker)
The missing key about front running in the article is the 'anonymous' bid-ask: "The matching engine takes his order and displays it (anonymized) to all other traders with a data feed." and "She places her orders, and it is again displayed to the world (anonymously) and stored.".
If you have forehand knowledge of the bid-ask (i.e. non-anonymous) the market maker can front-run and with high-frequency make a considerable profit.