Understanding Jane Street(thediff.co) |
Understanding Jane Street(thediff.co) |
I wonder who are the counterparties selling puts to Jane Street. My cynical view is that they are losing overall but the traders don't care because they are winning in short term (when nothing happens) and may have already changed their job when the market crashes.
2. You have to solve over the phone very hard math questions to make it past the initial screening stage. I dunno what comes after that.
The highest-stakes gambling events in the world are typically very discreet, invite-only affairs. One that might be close to the top in terms of available winnings happens at the end of Jane Street internships: interns get a stack of 100 poker chips and spend half a day getting asked brainteasers and then betting on their confidence in the answers. Some of these questions might be pure math and probability questions, some might be more abstract bets on making a market in some outcome, and apparently one of the questions is a tough probability question where part of the prompt is to bet on how long it will take to get the answer.1
I dunno why brain teasers are so important. I increased my account by 5x since the lows of covid to present with simple large cap tech and etf strategies (tesla ,tqqq, tecl, amazon, and others ). I don't need to mentally visualize 3d shapes intersecting 2-d planes or count colored vertices of hypercubes to make money or develop good strategies. Just some basic calculations and some other analysis..maybe advanced high school level. It's like if you want to find good traders, look for people with good track records.
If I were going to start a fund, I would do away with the puzzles. Instead what I would do is look for people who seem to have good track records on reddit or elsewhere and some decent risk management, like on wallstreetbets. There are thousands of users there and then I would try to find the best ones and try to quiz them on risk management to see if they are relying on luck or have a system. Recruiting from reddit or twitter is harder than linkedin, but I think the quality is better because you are seeing actual traders in their element. instead of hoping that puzzle skill will lead to trading skill, you just pick people who are already good.
Continued:
The other mitigation strategy is: just buy some puts. Markets usually don't crash upwards, but they do have a habit of crashing downwards. And for a market-maker, a crash is a uniquely interesting situation: volume is high, spreads rocket up because people are afraid to trade or don't have the liquidity, so an active participant can make a staggering amount of money. (I liked this Reddit AMA: "Yeah, 08-09 was insane. I've heard stories. No one knew what the fuck was going on and everyone was on edge. Then it all turned out fine and everyone got PAID.")
Puts bleed out a lot. Even during bear markets they lose money if the path dependency is unfavorable. The covid crash would have been perfect, but the 2022 bear market has been much more gradual, so puts would have done more poorly.
Yes, the 'crashing down' aspect is captured by the skew or smile. That's why a 20% ITM put will have a much higher IV than a 20% OTM call or be much higher than predicted by the volatility of the underlying. In some cases it will be massive...like a 38% IV compared to 11% for the underlying. So many people have tried to make put strategies work, and I have yet to see anyone do it, but if someone actually could I imagine they would not tell.
Looking for people with good track records is a terrible way to choose traders. See: https://m.youtube.com/watch?v=zv-3EfC17Rc
Tldw: meets a person, picks 5 horse winners, gets then to invest. How did he pick 5 winners? Emails 1000s of people, using a permutation per person. The person who sees the 5 wins thinks he has a system.
Real life version: 1000000 monkeys given ability to trade. Scratch bum=buy, scratch head=sell. One of the monkeys will certainly have a good trading record by the end of it.
But all you need is a bull market to 50-100x your money with 3x funds https://i.imgur.com/PF7XEaR.jpg
If 7/10 past decades are a bull market then odds are you will make good money.
Market neutral strategies are different though.
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https://www.wolframalpha.com/input/?i=3000*%28%28integrate+1....
A calculation i ran to answer this problem shows that if you have $10k and split $3k of into cash that yields 3%/year and the $7k is put into TQQQ, which generates a long-term CAGR of 53%/year, approximates the actual returns of TQQQ .
So this turns the $10k into $1.5 million over 12 years, which is close to the actual result (100% or $10k invested in TQQQ at the start), assuming a crash happens every 8 years (modeled by exponential distribution and based on empirical evidence going back the past 100 years) and and then after TQQQ falls about 70% the $3k cash is then put into tqqq. After crashing, the above formula assumes that TQQQ races higher in order to maintain it's long-term CAGR, so buying the dip helps a lot.
So generally speaking, keeping 30% in cash/bonds equals the result of 100% fully invested if you buy the dip. The downside is if there is no crash you will lag.
There are various tweaks like above to improve risk adjusted returns. It's not that hard to do if you have a basic knowledge of calc and stats.
You are likely the same, though you don’t know it.
Now if you manage to grow your portfolio 5x again between 2022 and 2024, that will be something.
You managed to make money on a levered high-beta strategy in a zero interest rate environment? If you don't know who the rube is in a market, it's you. Add a bit of volatility and the smart kids at Jane Street will eat your portfolio. They are on both sides of every trade, taking your money no matter what you do.
The days of the "good track record" traders in the public markets have been over for 15 years. Forget your strategies, park your money in SPX and thank me later.
You can make your substantive points without that.
I also worked at a hedge fund myself, and i was not a "referral" either.
They post positions online, apply. if you have the skills they are looking for you can get in.
Did you apply and get rejected?
The markets are not predictable based on past history. Whenever you have a model that shows they are, you are either cherry-picking or have been lucky. Even more, there are far too many external phenomena affecting the fortunes of an individual company to be able to reliably make the kinds of bets you are taking about.
> After crashing, the above formula assumes that TQQQ races higher in order to maintain it's long-term CAGR, so buying the dip helps a lot.
This is the funniest assumption by far. All (public for profit) companies try to "race higher" at all times. Sometimes they succeed, sometimes they stagnate, sometimes they crash. Right after a crash is when you have the highest chance of it never coming back up. The CAGR is a historical observation, not some kind of parameter of a forward-looking model.
The highly mathematical quants hired by trading firms are doing something pretty different. They are trying to find opportunities for profit wherever they exist using advanced techniques. It is much different to you or me casually using what seems like a "common sense" approach. Most people who say "of course it will..." find that the next quarter is the exception to their definite rule about how everything works.
You've already made the assumption that you can detect the market bottom to select when to drop the $3K, which is ludicrous, and begs the question if you're know where the bottom is why not put the full $10K in then with maximum upward leverage.
Also how does TQQQ work. I don't know and I am happy to admit that. But I assume they need to do re-balancing shenanigans to keep the leverage at 3x, they have to pay interest on the leveraged money, and so on. So it is possible that the market takes a milder dip than 33% but you get stung on TQQQ - maybe not a wipeout but severely down and takes years to get back to break-even. Would like to hear from someone with knowledge of this.
If you have a long term alpha strategy - one that can beat the market every time - and it is as simple as buying an off the shelf instrument and topping it up. I would be surprised.
If this stuff floats your boat I'd also recommend any of Carl Cook's talks, e.g. https://www.youtube.com/watch?v=NH1Tta7purM. Optiver is AFAIK in a somewhat different business than Jane, but they're also players (or were last I had any inside baseball).
Too many people got their worldview on this industry from "Flash Boys", and I say this as a Lewis fan, is criminally stupid at best and in bad faith at worst (if you want a well-researched, accessible alternative: https://www.amazon.com/Trading-Speed-Light-Algorithms-Transf... is about a zillion times better).
It's a pretty short list of places I'd ever go through some grueling and semi-arbitrary gauntlet to work for, but Jane is on it for sure.
I hope the author(s) do Medallion next.
Medallion has probably gotten more scrutiny than any other fund, yet 3 decades later it's still as opaque as ever beyond vague 'statistical methods'. It makes a lot of money no matter what. It's more tight-lipped and exclusive than Jane Street. I don't even think anyone knows even if it's doing market making or not. Or if it's making short-term directional bets. You would think after 30 years stuff would leak and the edge would be gone. Employees are paid enough to not disclose, and likely are divulged only a small part of the overall method/system, so only a handful of employees will know how it works in its entirety. What it's doing has to be on a very large scale and in a big and liquid market to be so consistent and profitable.
Of course, the 30%+ annual returns almost every year for 30 years doesn't hurt the mystique either ;)
It's interesting that their other funds are far more mundane in terms of performance and last I heard Medallion can't hold much capital (~10B or so I've heard in whispers), but there is definitely something interesting as hell going on there.
Near as I can tell it's the hardest job to get on Earth. Rumor mill is that they pre-screen candidate based on their citation record in the literature, though that's obviously hearsay and I don't know if it's true.
Everything about them is boring. They're well paid sure, but they're based in long island and hire mostly grey beards and don't overhire. Compare that to Jane Street hiring interns jumping through silly hoops like betting poker chips on puzzles. It's a bit of a farce.
Theoretically other firms could copy this, but the main goal of a hedge fund manager is keeping AUM. High AUM and poor performance is better than low AUM and strong performance. So its a lot easier to optimize on maximizing AUM and managing your brand. There aren't a lot of mathematicians that start hedge funds so the people starting them already seed the company with the wrong culture to replicate RenTech.
What I've been told is that Rentech also effectively use their public funds as a source of revenue to juice development of proprietary platform, so some of it is business cunning rather than a hard technical edge.
They were also got on the quant train very early.
https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-tr...
0. https://www.bloomberg.com/news/features/2019-03-08/the-gazil...
That's more than enough on the instrument math side, most of what you'll see is pretty mundane stuff, unless you end up on an exotics structuring desk.
I'd also note that JS and other MMs mostly don't do anything requiring you to know the intimate details of these things, a lot of it is understanding how the market works rather than the deep instrument math. That might mean other kinds of math of course.
I've been trying to put myself through YouTube night school on some of this stuff, and MIT OCW has great resources as well at significantly less cost than going to MIT ;)
This is a pretty reasonable jumping off point for their corpus of financial engineering stuff: https://www.youtube.com/watch?v=HdHlfiOAJyE.
I'm fortunate enough to work with a person who actually understands derivatives trades with some sophistication, but that's a happy accident and the more people have access to good online resources the better!
Edit: I forgot to mention this book (https://www.amazon.com/Algorithmic-Trading-DMA-introduction-...) in the spirit of something more technical than the general-audience one I linked above. I have some nitpicks with it as well, but I've gotten value out of it.
(And to pile on, The Blind Side was the touching story of how Lewis’s prep school classmate, an Ole Miss booster, gamed the system to provide improper benefits to a high school recruit.)
It certainly seems like an interesting place to work, but I find their hiring process as a bit of a red flag. Places that hire like that confuse me, because it seems it's going to apply a very selective filter to applicants that make it through. And I don't meant selective in the sense of technical ability but more emotional, social, and thinking styles. I get incredibly nervous in technical interviews and with a wide background, I don't always know certain bits of computer science. So, I do terrible in these style of interviews, because they do nothing to expose what I do know or how I really think on projects.
As another point of why I don't think they work, they almost are never two-way. And if they were, it would show the pointlessness of them. If I asked interviewers a bunch of questions about things that I know about, then we'd just be trading blows, which is pointless.
This is a bit like saying you find the hiring process at the NFL or for SEAL teams a red flag. You either fall through the selection sieve or you don't, that's the whole point. The filter has served its purpose, and they end up with the elite high-performing teams they desire. There's nothing wrong with you or the filter if you don't make it. The filter clearly does work because Jane St prints cash like the Fed and is one of the top MM firms out there.
> it's an interesting format: viewing an industry through the lens of a particular firm
What's interesting about that? Almost every other article does that.
Honestly, I find this ridiculous. Firstly, Yes, working at Jane Street is a well paying job and you'll do well out of it. No. People aren't routinely retiring in their 30s. I don't understand where this absurd idea comes from. Look at all the rich people in the world, look at how old they are, and ask, are they retired? No! People who are driven and smart don't suddenly earn their first $5m go off and buy an annuity. They're more likely to go off and found their own trading shop at 30 than they are to retire.
Secondly, you know what happens to people who don't get hired after their internship at Jane Street? They go to HRT, to G Research, to Jump, to Citadel, to Optiver, to IMC, to XTX, if they're really unsuccessful they'll go to Google, Microsoft, Amazon, Meta. These are not people desperate for a job.
Re EA: quoting my boss, EA isn't really a dominant thing in the market maker space, it's pretty much only espoused by a couple high profile individuals (mainly, SBF).
Re strategy: point about how there's little strategy involved in being a market maker is off-base. Everything is ultimately strategy: do I continue to pour resources into a strategy that is losing money in the hopes of eventually seeing pnl? What markets should I focus on? What is the best use of time for each employee that maximizes pnl/head? etc etc
One thing that I thought article got right is that most work involved in market making is about avoiding trades, not making them. Capturing the bid ask spread is conceptually easy. The hard part is avoiding trading with toxic counterparties.
Part about put options is especially apt. Market making during a crash / recession (like right now) is especially difficult because all the non-toxic counterparties have stopped trading as much (people like to trade a lot more during a bull market than a bear one). By setting up a structure such that you profit during a crash (either by buying puts, leaning net short, or through some other method), you introduce an uncorrelated return stream that can really help.
It’s actually quite easy to argue with that. It’s 1 (or 2 at best) data points. 6.3bn is meaningless without knowing the capital put to work to achieve that. And finally if your 10x YoY it’s just as likely you had a bad year before as a good one this year.
You could maximise more good by first working at Jane Street in your 20s, retire by 30, and then set up your own smal fusion/cancer research lab where you can do research without being tied to government funding and politics. By 30, many cancer researchers have barely finished their PhDs, so you won’t actually be that far behind scientifically, but you’ll be far ahead financially.
But the tech blog is really good too.
If you want the best price, you need to have all of the market participants bidding together. Market hours serve as a coordinated period in which ~all market participants agree to be online and bidding. Prices, thus, get stale overnight. But we assume that that is mostly okay, as business is normally conducted during business hours, and we assume that transactions can wait until the next day. ACH transfers take multiple days! (technically so do stocks, but that's mostly invisible to retail traders).
If you're a retail trader, I would caution you somewhat against trading after-hours; there is very little liquidity and it could cost you 100s of bps more.
You can trade outside of market hours just fine and many products (e.g. E-mini S&P 500) trade all night. It's just that a lot of companies publish news right after the market closes so prices are more volatile. And people sleep or play videogames at night so there's less liquidity.
> Trading is a lottery operated by market makers, and like the lottery its social function is to convert mass innumeracy into funding for better causes.
It’s basically saying “we should have your money because we know better than you”. Maybe true, but I find it a very weak argument for the social function of a quant firm. Especially when lotteries are essentially a form of regressive taxation.
Also just ignore that line, it's not actually true.
I think people want to convince themselves that they're interested in high paying jobs such as those at Jane Street because that would make their lifes much easier (they could go work there and make lots of money). Similarly, some women try to convince themselves that they love this well-off, solid guy who's courting them - marrying such guy would make their lives much easier and nicer.
I'd love to know where this claim comes from! I'm not sure how much/what supporting evidence there is. It doesn't fit _my_ experience of people in Quant Finance. Of course, what does "routinely" mean here? 20%? More?
* not even average, this describes almost all software made in the last 20 years.
Filter out those who made bets too big to avoid outliers.
The 100 poker-chips interview thing = interview BEFORE internship.
As you would expect, a job offer is based on full internship performance.
I don't have personal experience but I have friends who interviewed there.
> One example of this is NAV trading (Jane Street has a paper here), where an investor wants to place a large trade in an ETF and agrees to buy it at some future point at whatever its net asset value is, less some small fee.
Should this say "agrees to buy it at some future point at whatever its net asset value is *NOW*"? Otherwise, I'm confused, why wouldn't the investor just buy it later?
I think they mean that the buyer will agree to pay $5000 now for say 10 shares (close to current valuation), and get it in a week regardless if they will be worth $0, $5000 or $100000 at that point. They would prefer to buy it now, but can't, and thus are willing to pay a fee to make it happen.
However, the motivation (and pricing) is different from futures trading: here the buyer would prefer to buy the asset immediately, but because of market inefficiencies or unavailability it's not possible. So some dealer figures he can make that happen in a week, takes a small fee, and agrees to the trade. In the meantime, the dealer might want to buy something that correlates with the value of the actual asset to cover his bet -- e.g. they might be able to buy most of the stocks in the ETF in roughly the same amounts, and just accept the remaining risk.
There is however a chance that they will not be able to complete the transaction.
https://www.janestreet.com/wp-content/themes/janestreet/pdf/...
I'm gonna guess they aren't paying the "retail" short term capital gain tax.
Why haven’t their gains been arbitraged away? Conceptually what they do seems simple enough; and presumably you just need capital to do it. Hell, their own former employees could theoretically compete against them - as could many traders who would pay to learn those strategies.
So why are they still making so much? I don’t understand why their “advantage” hasn’t been arbitrated away into a commodity business.
The given reasons for using Ocaml outlined in this article is interesting. It makes reasoning about complex systems easier. And making an "esoteric choice" earlier has advantages in hiring.
Assuming you give back to keep it going.
I don't have the advantage of secrecy where I'm at. But I'd be willing to guess that strategy could apply to other languages and markets.
Have fun first movers.
- OCaml does type inference, so you don't actually declare the types and have the compiler check them, as stated in the article.
- Investors are not market-makers, the two words actually refer to the two types of opposed participants in the market.
- OCaml is the language used for research, but they actually have a lot of developers working on the compiler and on libraries for OCaml which are themselves implemented in C or C++.
- Jane Street is hiring massively and not nearly as exclusive as advertised here, though they do indeed pay slightly above the average. Most likely they had a few good years and are investing the cash they made into hiring expensive staff.> OCaml does type inference
This is an uncharitable interpretation of the author's intent.
> Investors are not market-makers This is a very uncharitable interpretation of the source:
"In one sense, every investor is a market maker and the only difference is their timeline. Jane Street is far along the continuum towards strict market-making: being willing to buy and sell assets at a price close to, but not exactly at, the market price."
> they actually have a lot of developers working on the compiler and on libraries for OCaml [..] in C or C++
Yes, and? The author still makes the correct point that they gambled hard on OCaml.
> Jane Street is hiring massively and not nearly as exclusive as advertised here
I bet they're hiring very selectively for the high value core jobs discussed, even if they have a large support staff that does things like writing OCaml infrastructure in C/C++ and gets paid much closer to non-hedge-fund rates.
There are known loopholes that market makers get to exploit since they help keep the casino going. No need to make its a noble profession or compare to impact to actual economy or mankind.
These are the worst of the worst when its comes to exploitative and manipulative behavior to make money over retail trades just as a Hedge fund selling CDO's to pension funds.
Like what? I work at an HFT and I'd love to deliver a new strategy to my manager.
You can call them vampire squid from hell but they don't exactly take money from retail, they tighten spreads for them if anything.
But as for "could"? Shit you can do that at Google, Microsoft, Amazon, Meta if you're in that league and start out of undergrad. In my experience (more than a few of my FAANG-era colleagues either came from or went to high-technology finance), people don't actually leave Google to go to Jane for the money (which is similar at the p99), if you're a baller willing to pull the hours you can make many millions a year in either place.
I think people go to high-technology finance because they want to test themselves against a harder class of problem in a more adversarial setting against people who feel the same.
That's anecdotal, but my sample size is more than two or three.
Maybe this is so at other finance firms, but my experience with developers who go to Jane Street is quite different. Because Jane Street heavily advertises OCaml as part of its recruiting strategy, I know many people who ended up there just because they wanted to program in OCaml while still getting FAANG comparable salaries. They don't care at all about finance (at least initially, maybe it becomes an acquired taste for some).
That and among developers, I think Jane Street has hit "mythological status". I've known about Jane Street since I was an undergrad looking for internships and it was always talked about like: "oh yeah, that's where the REALLY smart people go to work". I think a little part of going to work there for everyone is figuratively one-upping your friends from college, you made to the place where geniuses worked.
Yes, these are some of the highest paying companies on the planet. Your statement is not a put-down of Jane Street.
I guess I must not be driven, because I would. Or at least something close enough to that. $5m just earning interest at 5%ish is way more income than I need to live the lifestyle I want.
I'd buy a few acres in the middle of no where, build a nice house, grow a big garden, raise my daughter as a nice family man and never work again.
Obligatory "Office Space" scene on "what would you do with a million dollars": https://youtu.be/4lmW2tZP2kU
No but having the freedom to start your own trading shop (or company) is hugely different than having to stick with a job you mostly don’t like to pay the bills
This kind of debate needs to be backed up by numbers or it won't be very productive. To get started we should know the percentage of millionaires in their 30s who are still working, and the ones who aren't working but are looking for a job.
Personally I can think of several things I would do with $5m other than buying an annuity. If you have that kind of money you are basically set for life if you make a few right choices.
Stepping down and just starting to live on annuity might not fit to what they have come to expect.
Great film.
The article doesn't say it's dominant, it says "There is a weirdly high overlap between quant finance and Effective Altruism in general, and between Jane Street and EA in particular (it is emphatically not 100%)"
I know quite a few EAs who work or worked at Jane Street, much lower profile than SBF. What the article misses is that a lot of EAs specifically went into finance because if you're looking to earn money to donate it's one of the places you can earn the most, and not because of "where they advertise jobs" or "overlap in outlooks".
Usually, flow from other MMs isn't toxic.
Toxic flow can also just be someone who's executing a very large order, even if that counterparty isn't informed. If you fill them as they are starting to work their order, you could get run over as they continue to finish that order and push the price against you.
isn't selling puts directional? One strategy could be something like trying to find a way to bet on volatility but without a negative carry or at least as small as possible...this is hard to do. Taleb's universa fund tries to do this.
[edit] To add one prominent example - it's doable, as Jeff Hawkins demonstrated. Founded Palm, made money, then created his own brain research lab. As far as I understand, the neurological community has not embraced his ideas with open arms, but they are at least intrigued by his universal computational model of the brain. So that's a pretty big accomplishment.
So either he's withholding whatever concrete insight he found, or he hasn't found it yet - I believe the latter is more likely.
I know multiple people who have done this.
If you want a famous person, look at Paul Erdős. Always jumping into new areas of mathematics and solving problems at the cutting edge.
Or, to get to the current subject, Taleb using his background as a trader to jump to a career in academia, where many consider(ed) his research cutting edge.
I would venture to say the average Jane street worker has done more good for society than the average cancer researcher or Alzheimer’s researcher.
For fusion research, the quantitative skills from many Jane Street people can easily transfer to make meaningful contributions to fusion research.
I understand that (as the article mentions) these folks clean up when the wheels have already come off anyways, but day-in-day-out, the spread on AAPL is one tick ($0.01) nowadays, rather than the 1/8ths that you'd get quoted by some loud guy from Jersey 30 years ago.
Citations on this stuff are hard to come by, but it does seem at least directionally true that these advanced actors are making less money over time even as the problem becomes harder. If that's true, it's money not going into the pocket of a middle-man somewhere. Multiply that by everyone's retirement account and we're talking real money.
A lot of people trying to change their careers would like to have a talk with you about this, I bet.
Ph.D in CS is 5-10 years ahead of newbie trying to learn computers
Its funny that the article uses a “chess champion” and a “concert pianist” as examples to to argue that you don’t question their occupations when it comes to being a benefit to mankind or not. I mean, the huge fucking salaries, where does the money come from? from fucking trees?
WTF! Seriously? I predict this will be one of the first article/HN post that has negative publicity for Jane Street .
I'm still waiting to see them bragging about having top proctologists in their team ;)
Even if you retire with 10M by 30 you aren't going to run a world class research center with that kind of money for very long, or at all. Hell Land, buildings and equipment probably eat most of that right out of the gate. MIT's Plasma Science and Fusion Center had to shut down when their funding dropped from $28 to $14M per year. So at 10M you could Fund, forget about building, a center 1/3 the size of MIT's for 1 year.
Nice try to justify your bullshit job, though.
It's also something that people almost never seem to execute, usually it ends with "make money and donate a small amount of it".
So you're actually right more than you think. Plenty of teams that make money do stop making money over time (or make less). I'm sure there were teams at Jane Street over the years that have folded or dissolved because they stopped making money. But as a firm, they may be making more money.
In the HFT firm I used to work for, that one team went from making $500k/day to $0/day. But another team went from making $30k/day to $2M/day. That's right, a team of 12 people making $2M/day. They probably ate most of the former team's lunch. That's how it goes, survival of the smartest and fastest.
So why hasn't Jane Street's edge been arbitraged away? Some of it has, probably by people within Jane Street who found even more edge. When you have hundreds of the brightest minds in the world, who's going to eat your lunch but yourself (and a few other high quality trading firms)?
But ultimately your assumption is wrong. What they do is not simple at all. It is not like building a simple CRUD application. Throwing money at the problem does not mean you will succeed. You will most likely fail. Strategies that used to work may no longer work when markets change, and markets are always changing. So some traders may try to take their ideas and apply them elsewhere, and they may have some limited success (not to mention the high quality speed and infrastructure you need to win), but when the market changes in 6 months, are you smart enough to keep up?
Are you able to elaborate on this?
I’m assuming that teams wouldn’t be sharing strategies with other teams. Is that accurate?
Would these other teams be independently finding some strategy that is either directly better than another internal team or is having some indirect impacts on other teams?
That happens, with mixed levels of success. But these firms are more than just IP. Their moat is:
- Lower fees, negotiated based on their volume and relationships. Crucial given margins of 0.02%.
- A well-oiled machine that makes the machine. This includes culture, branding into recruitment pipeline, and so on.
- IP has a short half-life. The machine that makes the machine is more important.
- Scale advantages -- code sharing between teams and asset classes, which is hard to replicate in a small group.
- You need to have perfect execution on every vertical to have a good shot. Devs, researchers, operators, relationships.
It's also common for that IP to not all be known by a single person. Division of labor can be used to protect IP.
"Making high performance CPUs that are also highly power efficient should make a ton of money. Why isn't everyone doing it?"
Well, turns out that isn't exactly something that a small group of engineers can whip up in a garage anymore. Same goes for highly efficient market making systems.
HFTs came into their own over the past decade or so -- during a time of falling interest rates, unprecedented growth, and notable lack of regulation in financial markets.
One of these things is not like the other. I'd be entirely unsurprised to see most HFTs turn out like Lehman Brothers, Enron, or AIG. They all lasted more than a decade or so. But their gains were fraudulent and they failed spectacularly.
That said MMs have mostly consolidated heavily over the last decade (due to many firms collapsing against competitors) so in some ways the business has been commoditized. Not sure if true of MMing ETFs as an authorized participant (JS bread and butter) though, idk much about the logistics there.
The costs of maintaining a trading platform are very high. You have to be colocated with brokers/exchanges, and have a full market data and trading platform optimized down to microseconds. You need a large data and processing farm to backtest your algos. You need the legal structure to dodge all the tax. You need access to lots of GPUs and FPGAs to train your models and execute fast.
All the players that are left are highly sophisticated technologically, but also in terms of ecological position. For instance you have Citadel doing PFOF with Robinhood. Once you lock in a deal like that, you have a special position in the market. Having access to lower fees is also an important part of the game, and it only happens for players who are already in the game.
In addition, perhaps a small point relative to the first, but in Ocaml, the arithmetic operators perform no type inference; there's a separate operator for float-addition versus int-addition, and so on. This somewhat limits your exposure to potential automatic type conversions.
In Ocaml-world it is customary to write .mli files that specify the types of exported functions and modules. Those are then checked by the compiler against the .ml file with the implementation. In the .ml file you indeed use type inference over annotations almost all of the time.
The Ocaml compiler is largely written in Ocaml. C and C++ are not used very much at Jane Street as far as I know.
If anything, having that many achievers results in bored people doing things that are suboptimal for the performance of the firm as a whole. Whole divisions of wasted talent spawn and self perpetuate.
It's the hiring process hazing ritual that sets the allure, there's not much else to it.
1. What do these firms typically look for in support staff? I’m asking about non trading/quant roles like recruiting/ops/facilities management?
2. What’s the potential upside, not specifically financial, but more along career growth and opportunities for different roles within the firm if you join in a support function?
Appreciate any insight you may have.
Could I have made more money at Jane St? No idea. Probably? But money isn't exactly holding me back right now.
Would I have felt like I was working on interesting problems? For me, personally, I don't think so. I don't find abstract problems as interesting as I do practical ones, and, practically, working at Jane St is working to make a few rich guys incrementally richer. Not really a problem I'm interested in, I guess.
(As an aside, it seems to me retention is much higher in tech than it is on Wall St. The rosy view of this seems to be that Wall St pays so well that everyone retires early, but then again, there's a reason they call it "compensation.")
You have to make your own choices. Jane St has a gleaming reputation--and maybe, for you, it would have been a perfect match!--but not getting hired there seems to me to be a strange thing to consider a "greatest regret."
People don't leave.
Of course Jane Street is successful! There's no question there. However, I don't think it's much of a question that they probably miss out on some great candidates that don't fit into that type of hiring process. It's possible they view those as acceptable losses.
- lifestyle - how much does this job affect my work/life balance? Do I have to travel far / work late?
- challenge - how hard is it? Will I enjoy the work?
- impact - what's the mission of the company? What am I contributing to?
- salary - how does the job fit with my financial goals?
- prestige - can I talk about / be celebrated for what I do?
Possibly other factors as well. But if everything is equal, but one job pays more than another (and if it's Jane Street, one year's work might be 3 years' work somewhere else) then it makes sense to take it.
What money bought them, and why I now want more than I have, is the ability to delegate both tasks, but even more importantly worry, to others. If I have a brand-new car with a warranty, I spend zero worry that it’s going to break down. If I have a hot shit CPA and/or lawyers and stuff, I spend zero worry than I’m going to dick up my taxes or something. If I have a rhodium-plated health plan, I don’t worry (much) about getting sick. Ditto fitness trainer, ditto housekeeping service, ditto laundry service.
What this really buys a passionate hacker (really a passionate anything) is time unencumbered by stress, which is very different to just time. I can really focus on whatever I want to.
Usually this means I have to work hard and stress about technical stuff, but I far prefer, borderline like, being wrapped around the axle on technical stuff. I hate worrying about that other stuff.
How anyone could fail to consider this a reasonable tradeoff is beyond me.
The emphasis on published work rang a bell, but thumbing through the book I can't find it off hand.
Another friend at G said the “smartest person in the office was poached by this company TGS, have you heard of them?”
How? In today's academic environment you won't survive even a few years without publishable research results.
That said market makers do a lot more making than taking.
Or they can take a strategy built on advantageous relationships with banks providing credit for leverage, an accurate and clean history of the markets and prior data to feed models, all run by teams who know what they're doing and who are constantly working to improve the edge the entire firm has, and try to do it all themselves after only really working in one small area.
Don't cut out the best part of the quote :-)
Correct. At least at this firm I was at (different firms have different org setups and therefore incentive structures), each team was a silo. All the teams shared the common core infrastructure to talk to exchanges, but that was it.
Teams have negative incentives to help each other.
> Would these other teams be independently finding some strategy that is either directly better than another internal team or is having some indirect impacts on other teams?
Exactly. You have no idea who you're trading with. It could be against other teams in the company or other players in the market (probably a mix of both).
Sonia Vallabh, and her husband, Eric Minikel are the strongest examples of these type of highly smart and ambitious people.
> Sonia Vallabh ... had just graduated from Harvard Law School.
> [Eric Minikel] ... had recently gotten a degree in urban planning from M.I.T
https://www.broadinstitute.org/bios/sonia-vallabh
https://www.broadinstitute.org/bios/eric-minikel
https://www.nytimes.com/2020/07/07/health/rare-diseases.html
He already had a PhD so it's not surprising he was able to enter Academia. But outside his books I'm not aware of anyone talking about his Research much.
Does anyone who works in this field know of it being currently applied?
Personally I really enjoy his books and recommend them to my friends and family. Professionally, I have never heard his name being mentioned.
You find the same 'fluffy' management books on trader desks (varies between firms).
- Some translation of "the art of war". - Tribal leadership and their whole "Tribe of tribes" nonsense - its name escapes me at the moment, but some leadership book written by a US marine? Because this maps directly to finance? - six sigma
Usually they are "management" focused chanting type material.
They tend to be on the regulatory side.
It's never because you're very passionate. Passion has basically no correlation with financial success. Millions of passionate artists, musicians, writers, and all of them broke as can be, most working shit jobs to pay the bills wishing they could just be passionate and make money from that. Passion is bullshit.
The real path to financial success is a combination of: being born to parents with the means and motivation to see you well education; being born lucky enough to be a little bit clever; being lucky to pick a career that makes a lot of money, often only by ignoring idiots who say 'follow your passion; putting in a lot of hard work to get good at something that is in-demand.
Or the usual answer: just being born wealthy and wouldn't-you-know-it you wound up wealthy too.
Have you got any evidence for this? I would expect that passion correlates with hard work, and hard work seems to be necessary for success. I agree that many artists are passionate, but surely people can also be passionate about doing things like writing software or other activities that are valued highly in the market.
We live in a culture that wishes passion lead to success. It's what we're taught as children here. It's what we want to be true.
And yet I find no strong evidence anywhere supporting the assertion that it does; just people claiming that it's up to those who doubt to disprove it.
Passion is a fairy tale adults tell each other because it's nicer than the reality that dumb luck and being born wealthy are the only real chances we have.
And those who were lucky or born on third base love to tell everyone it was because they were just so darned passionate.
[1] https://www.investopedia.com/terms/f/frontrunning.asp#:~:tex....
Again, not an expert.
However, HFT's do not trade on non-public information. Every participant has access to the same market data. I could start my own "HFT firm" tomorrow; I would just be incredibly unsuccessful at it because I don't have the finances or computing resources to execute.
A large talent pool isn't necessarily a positive if you don't spend a lot of effort on your recruiting (mostly filtering) process. It really just increases the risk of bad hires.
I mean, Yaron used to go around a lot and give guest lectures about OCaml programming "in industry" at all sorts of functional programming courses in universities. I have to imagine they thereby recruited people who would have never considered HFT shops otherwise.
Then again I think one of the founders or top execs is an alum, so it’s possible Cornell has that course in that language because of Jane Street
Thanks for the material!
I always throught market microstructure was more important, but they insisted a disciplined application of the maths (as per the bible of Hull) was where the magic really was.
Then, you can quickly read Bjoerk, work through Brigo/Mercurio (if you like that style) or Andersen/Piterbarg. Alternatively, if you want to fully dive into into the subject after Shreve, Musiela/Rutkowski: "Martingale Methods in Financial Modelling" is wonderful.
Boom!
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-6494...
> The present paper reports two studies designed to test the Dualistic Model of Passion with regard to performance attainment in two fields of expertise. Results from both studies supported the Passion Model. Harmonious passion was shown to be a positive source of activity investment in that it directly predicted deliberate practice (Study 1) and positively predicted mastery goals which in turn positively predicted deliberate practice (Study 2). In turn, deliberate practice had a direct positive impact on performance attainment.
https://journals.sagepub.com/doi/abs/10.2466/pms.110.C.1029-...
> The major purpose of this study was to test the hypothesized paths from dualistic passions through achievement goals to subjective vitality and performance in sports. 645 high school athletes participated. The proposed structural equation model, with relationships between dualistic passions and subjective vitality and sports performance mediated by achievement goals, fit the data well, especially for mastery-approach and performance-approach goals.
Probably best because of its wide scope and broad sample:
https://www.pnas.org/doi/abs/10.1073/pnas.2016964118
> In three large-scale datasets representing adolescents from 59 societies across the globe, we find evidence of a systematic cultural variation in the relationship between passion and achievement. In individualistic societies, passion better predicts achievement and explains more variance in achievement outcomes. In collectivistic societies, passion still positively predicts achievement, but it is a much less powerful predictor.
This took me 3 minutes. I don't claim these studies are the last word on the subject. I just wish people were a bit more curious - passionate even - about checking their own beliefs.
Regardless of what the individual you responded to thinks.. Firms like this have very difficult interview processes. They are looking for something "Special" and this excludes the vast majority of applications.
I took a taxi to my interview, and the taxi driver himself told me he drives many people to the location for interviews, and drives a lot of unhappy people back (failed the interview).
It should tell you something when even a local taxi driver knows how difficult it is to get into these places.
I will try to answer your questions as well:
1) I did support work when i was at "hedge fund" - They want people who can think outside the box and be a culture fit. their culture is well known, and you either fit in or you don't. There is no "faking it".
They generally hire fresh grades from ivy league schools. This way they can indoctrinate the culture. This is not always the case, but probably 70% of their employees were done this way.
2) Many of my former coworkers are now CEO's, COO's etc. Besides the money the culture encourages you to push past your limits and grow. One guy was a developer, he's now the CIO for an international makeup company..
At the firm I worked at, it did not matter what your role was. If you wanted to change groups, you would be given a fair chance to take the tests. if you passed, you were in the new role. The tests were INTENSE... but many "techs" moved to business roles over the years.
There are many support roles, one is research, and that can mean sorting through a daily pile of a few thousand "documents" (ranging from a single paragraph to a thousand pages) and sorting them into groups, and then being able to rapidly summerise the salient features.
This bleeds into training AI to do the same .. while remaining aware of the nature of the material to be a human check on the AI.
There are also roles for people that can map or otherwise visualise data, pander to the needs of the core earners so that they never need reach far for what food, drink, personal life support they need, etc.
If you're aiming for support you likely want to present your discretion and ability to seamlessly play well with others as dynamics and demands change.
Shows that you are both courageous and smart with a positive, vibrant attitude. Thanks for sharing your positivity, much appreciated and more likely than not you will succeed in your try. Good luck :-)
Is that only because OCaml has more of an FP flavor, or is it something else about the language?
The speed (latency) of the EM spectrum is the effective celerity of the medium: this doesn't differ in the air between microwave and shortwave in any meaningful way.
The speed (throughput) achievable on a given frequency is limited by the period of that frequence, high wavelengths can modulate more signal. Microwaves are higher frequency than radio by definition, so they have a higher throughput.
Neutrinos don't exceed the speed of light, and make a very bad medium of transmission given the near-complete lack of interaction with baryonic matter.
As you say the downside is available bandwidth and throughput.
That's a maybe. Still, good point.
It's a decent book, and a decent movie (kudos for one particular scene where I recognized data from the actual LoanPerformance database) I actually prefer the movie Margin Call for more accurately capturing the feel of the crisis from inside a bank.
Another compounding factor is people often assume the message is "banks bad" but it's more "oh this system was so complex that any one individual did not understand the impact of their decision(s), much much more than everyone/anyone was playing super fast and loose from their particular perspective "
On a different but related note, I also really enjoyed the Compleat Ubernerd, written by Tanta, all about mortgage servicing in the mid 2000s: https://www.calculatedriskblog.com/2007/07/compleat-ubernerd...
I'm not sure how it has aged (no Dodd-Frank updates, the author has passed away) but it was glorious in its time.
https://www.newyorkfed.org/medialibrary/media/research/staff...
The CR blog was not the same after she passed away.
(On Tanta's passing: https://www.calculatedriskblog.com/2008/11/sad-news-tanta-pa...)
An example of a language that I could see shifting from one to the other pretty soon is Rust now that it could be a way in to many of the high paying big companies like Google, Amazon, etc.
These companies hire from a different pool than you described.
I definitely didn't have more special accomplishments than 2 typical internships and both were not FAANG.
Pinging (https://www.finra.org/investors/insights/getting-speed-high-...) would be an example such strategy.
Most markets, in terms of their daily volume, are open at night, but very thinly traded until EU hours, but some do see action in Asia hours. It’s just about liquidity.
Maybe you’re thinking of single name equity markets, which are a fraction of daily trading.
I think the one of the main reasons is government concerns about shenanigans happen overnight without oversight / flash crash. That being said I presume all the breakers that would halt trading activity are probably automatic but potentially not all of them (I think the US did things like that during the housing collapse).
Occam's razor is all I'm saying: What's the simplest answer to the question, why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading? Wouldn't we expect types like Burry -- self-driven, confident financial geniuses -- to be equally decentralized? Wouldn't we expect returns to become equally decentralized?
Fraud is the simplest answer. Maybe that comes in the form of market coercion, regulatory capture, negligence, or any other plain old market manipulation. Look back at Enron: The Smartest Guys in the Room. It's all much too similar for my tastes. Time will tell.
This is absurd reasoning. It's like saying Apple has such large profit margins on their iPhones that they must be either cooking their books or in cahoots with someone somewhere. It's just a phone! How hard is it for a competitor to make a comparable phone?! They've had 15 years to copy them!
> I honestly can't name any investment firm with double digit returns YoY for more than a decade or two that doesn't have bodies in the closet.
It's clear you have literally zero idea what HFT actually does, yet you don't hesitate to call them frauds. HFT firms do not "invest" like traditional investment firms or hedge funds. They provide liquidity and sometimes take liquidity but only tend to hold those positions for seconds or minutes. At the end of every day, most HFT firms have zero position (some might hold some spreads or hedged positions overnight but those are generally less risky).
> why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading?
HFT firms don't compete against each other on pure "technology", but more so on mathematical models or what you could call intelligence. Intelligence is not simply arbitraged away over time, although it does happen to some extent. My comment earlier discusses some of this [0]. Technology has little to do with their success. By the same reasoning, why hasn't Apple's margins been eaten over time?
> Fraud is the simplest answer.
The ancient Greeks thought that Zeus was the simplest answer for lightning, but clearly we know that not to be the case.
> Time will tell.
We do not need time. We already know. That you personally don't know doesn't change the fact that nothing illegal or wrong is going on.
Enron straight up lied to regulators, many of their employees were also plain negligent. HFTs will probably find their own flavor of fraud given a few more years, if they haven't already.
This is what psychics call a "cold reading" - a statement that is bound to be true eventually! At some point in the future HFTs will "find" (?) something approximating fraud. That almost can't not be true. But I don't see how it relates to your statement that Jane Street's reported profits are fraudulent.
{x} came into their own over the past decade or so, during a time of falling interest rates, unprecedented growth, and notable lack of regulation in {x's field}.
Point me to three funds that have maintained greater than 20% YoY profits for more than 20 years. I would be floored if you could do it. Apple, arguably the best and most profitable business in the world, manages between 20-30% YoY profit. They're the largest contributor to world financial markets rather than operating only on derivatives. I can not imagine a world in which the largest trading firms can outperform that without fraud of some kind. In my mind, it's like gravity. Little rocks rotate around bigger rocks.
Either way it's more sensible to build high throughput microwave networks given the tiny amount of shortwave bandwidth we have.
Or you can take your ~10M or whatever in earnings during a decade as an OCaml programmer at Jane Street and fund a cutting-edge cancer research lab?
Are you reading yourself after you type?
Might be one of the more arrogant things I've read. And I frequent WallStreetOasis.
Also I said the average researcher, meaning taken from the global population, ie not from a top institute. Jane Street is highly concentrated in talent that produce real results in the world.
The average cancer researcher has probably done more good than the average trading firm worker though.
This is just blatant Jane Street (and more generally, hedge fund) propaganda.
Yes, you serve some role within the financial system, but you're not really relevant to society imminently and to non-western societies generally.
Who do you think is supervising the high school student? Where does the idea for the project come from? Where does the money supporting the high school intern' experiments come from?
Spend your money attending conferences to make connections and get yourself updated in the field.
Hire technicians to help with your grunt work. Spend your days reading research papers, discussing science at conferences, and setting up new experiments.
More often, you are trying something that hasn't been done before and you're getting results that don't quite make sense. Here, experience and background knowledge seem key, and I'm not sure that you'll pick up much of that in a year, even in a "top lab" because experiments are slow. On top of that, you'll need to learn how to design experiments and analyze/present their results in ways that your peers find convincing, which is in itself a non-trivial skill. All this presumes that you're even able to find your way into a "top lab", but that's not a foregone conclusion either: these places can be incredibly selective even among people with a decade of experience in the same field.
Put another way, your answer assumes there's a lot of fat to trim in the PhD/postdoc stages. What is it and can it really be cut down by 90% as you propose?
On the more experienced end of the scale, I'm often surprised to see how many resumes with 3-5 years experience are basically Python-only. This, in the absence of something else in the resume that speaks to domain expertise or something.. its definitely a less exciting prospect to me.
The 2000s version of this were Java-only devs and people who acted as though we didn't need to know how the hardware worked anymore because Java abstracted it away. You see this attitude with some cloud/k8s type dev today.
In both situations, naively.. yes you don't need to understand much about the hardware for your basic implementations.
Arguably once you get into moderate levels of complexity you actually have higher cognitive overhead because you need to understand how the underlying hardware behaves and how the abstraction layers between you & it interplay..
The AGI/singularity conversation aside of course, which I am not at all interested in having. ;)
Highly profitable, speculative, and complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing. As such, these types of firms have a high burden of proof for legitimacy. If that hasn't been met, betting on fraudulence is pretty safe given historical context.
If you’re independently wealthy, you don’t need to go through the modem hazing ritual and you can start your own lab much earlier.
I’m not saying you can start immediately and be an effective researcher, you will initially suck like everyone else. But you will have a better time learning how to fail if your career/livelihood is not on the line.
That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up.
I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two.
There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
I really hope it isn’t, or it would be making lots of tax events! I hope it’s doing in-kind transactions like all the normal ETFs.
> Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
No, robinhood average order is just smaller so less risk of adverse selection.
As for your second point, I guess neither of us works at Citadel so we're both guessing, but if you agree that there is a market for order flow and that the most charitable interpretation of why that would be the case is because of the attached optionality for internal netting, then you're sort of making the assertion that all PFOF is equally valuable, which would be a hell of a coincidence.
As a sort of side note, I regard the cherry-pick the parent with ">" prefixes and go after snippets of what they posted as basically the lowest form of discourse on HN in spite of how popular it is, and I would encourage anyone to try to reply to someone's entire comment rather than just trying to find the weld points and lean on those spots. It's pretty weak.
I am not sure I understand. That would mean that the number of advanced actors would stay stable or go down over time (generally much research shows that markets tend to concentrate even in pure random trading, so the number of advanced actors should go down). Is that actually the case?
To wildly oversimplify, market makers will tend to drive the spread down to the tick size, and arbitrageurs will tend to put themselves out of a job.
For the industry as a whole to be growing either in distinct actors or cumulative top-line, the number of markets and instruments and general financial activity has to be growing faster than the big dogs are eating each other. This is my (semi-informed) guess.
That is, in my view, at best an ancillary goal (notice that most money in the markets doesn’t participate in buying shares from the company itself).
That may be what you want the markets to be about but every other participant has other desires from the markets and the great thing is they can all get what they want from them.
It's also true there are many other participants with many other strategies to extract that value created by the companies from acquiring and merging them to collecting dividends from a balanced portfolio to day trading, but the reason the market exists in the first place is because companies that create value need their capital in order to do it. As you correctly point out, most of the actual trades are secondary market ones involving companies not in the process of fundraising, but those trades are still positive sum inasmuch as without liquid secondary markets, companies that create the actual value might have found it too hard to raise funding. The difference between being able to sell TWTR on IPO day or shortly afterwards and being forced to hold it until an Elon Musk comes along and follows through with its existence has a huge impact on its ability to raise funds and grow. On the other hand reducing the time between trades down to smaller sub-second microsecond intervals is - whilst useful to people trying to win at essentially zero-sum trading games and inflating asset prices very slightly - going to have a pretty minimal impact on whether companies create more value by raising more funds.
Equities markets are a piece of the pie. The largest, by far, for the kind of HFT we’re talking about, but a fraction of financial activity.
The core goal of financial markets is to gather and match prospective buyers and sellers so that trading can occur.
> They provide liquidity and sometimes take liquidity but only tend to hold those positions for seconds or minutes.
Do HFTs issue or purchase billions of dollars of debt with the express goal of market liquidity? No? So why do you use the term "providing liquidity?" You know "providing liquidity" isn't the same thing as "frenetically purchasing and selling derivatives," right? If these funds didn't exist, I've seen no compelling evidence markets would so much as hiccup. I've seen plenty of compelling evidence that much of financial services in this country are a net drain on its productive capacity.
> We do not need time. We already know.
We'll have to agree to disagree. I think far too much activity happens in financial services, that they aren't nearly boring enough. I harken back to the 70s/80s back before massive deregulation in financial markets, when financiers had to get two jobs just to tread water. I suggest we might revisit such a time. Time will tell!
Your entire argument is "I don't know what they do, and they make money in finance, so they must be doing it illegally." The burden is on you to provide evidence to back up your claim. That's how things work. I could claim that HN user rgifford is the Zodiac Killer, and my evidence is "I don't know him but if you rearrange some subset of the letters of words he's typed in the past, they spell out 'I am the Zodiac Killer'". Whether you realize it or not, your reasoning is that specious at best.
> The market for consumer electronics hasn't fundamentally threatened the stability of the US government every decade for the past 5 decades.
Nothing HFT has ever done has come within even 0.000001% to threatening the stability of the US government. Period.
> Renaissance Technologies Medallion fund may as well be an insider trading scheme for all the public can tell.
Again, claims require evidence. You need to provide that evidence. But more importantly, the fact that you compare RenTech's Medallion Fund to HFT again demonstrates your complete ignorance on the topic. The Medallion Fund isn't powered by high frequency trading. It started decades before HFT ever existed.
> Do HFTs issue or purchase billions of dollars of debt with the express goal of market liquidity? No? So why do you use the term "providing liquidity?" You know "providing liquidity" isn't the same thing as "frenetically purchasing and selling derivatives," right?
You don't know what providing liquidity means. When you place an order to buy or sell 100 shares of MSFT in the market, who is taking the other side of your order? The vast majority of the time, it's an HFT firm.
> If these funds didn't exist, I've seen no compelling evidence markets would so much as hiccup.
I'm sure if you took all of the grease out of your car engine, it would continue to operate without a hiccup.
> I've seen plenty of compelling evidence that much of financial services in this country are a net drain on its productive capacity.
Another false comparison. HFT is not a standard "financial service" that is provided to consumers.
> We'll have to agree to disagree [...] Time will tell!
Flat earthers also ignore reality and disagree, but that doesn't make their perspective equally as valid as those who look at pictures of the earth and conclude it's spherical. Time has already told us, but whether or not you want to look at facts or educate yourself on even the basics of what you think you're talking about is a different question.
Almost every sentence you said in your post contained some flat out false or wrong statements. Your unfounded arrogance is matched only by your ignorance on this topic. You have not made a single concrete or factual point about how HFT might be fraudulent, yet you seem to hold this worldview with the same conviction that the sun rises in the east.
Literally anyone. Literally any other market participant with interest in longterm ownership.
> Your entire argument is "I don't know what they do, and they make money in finance, so they must be doing it illegally." The burden is on you to provide evidence to back up your claim.
That's not my argument. Snakes bite. Highly profitable, speculative, and complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing. Precedent matters. When an assertion violates a precedent, it's what must be proven. Your assertion has the burden of proof, and it's an incredibly high one at that.
> ...the fact that you compare RenTech's Medallion Fund to HFT again demonstrates your complete ignorance on the topic
Medallion is one of the most well regarded and profitable hedge funds in modern American history. It's a grandfather to modern HFTs. Even its sterling record is highly suspect.
I sincerely hope the American public doubles short term capital gains taxes and regulates financial markets back to the stone age. Smart people need to spend their time on engineering, medicine, and research. The amount of human capital wasted on silly little financial machinations these days sickens me. I go back and read about financiers jumping from building back in the 20s and I understand completely. Our best and brightest, so confident of what they had to gain, traded their potential in pursuit of Alchemy only to be left with nothing. And who can blame them? Newton fell for the same.
Obviously true that financial markets for commodity futures etc have different functions, though a similar logic applies to them (the extra liquidity in commodities futures markets is useful to the extent it facilitates real world production decisions)
Nitpick: that’s 10 to 37 days for Google or FB. 2B for Google is ~10 days, 4B for Meta is 37 days. Alphabet net income for 2021 was $76.033B, Meta Net income $39.370B.
Morbidly funny anecdote: when I first moved to the NYC office I obviously didn't have many friends, let alone a significant other. Myself and a few of the other sad saps who failed to notice the office clearing out a bit early around us were borderline freaking out over what looked like very anomalous behavior in the IG ranking system.
It wasn't until we raised it in a slack group that included some coupled folks that we realized it was Valentines day. Womp Womp. ;)
You don't know what you're talking about. If there were no market makers, your orders probably wouldn't execute within any reasonable time frame.
> That's not my argument. Snakes bite. Highly profitable, speculative, and complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing. Precedent matters. When an assertion violates a precedent, it's what must be proven. Your assertion has the burden of proof, and it's an incredibly high one at that.
That is your argument. Snakes bite? So, therefore, what? Financial companies commit fraud as their primary form of operation? What kind of argument is that? It's ludicrous.
> complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing
I cannot emphasize this enough. You literally have zero idea what HFT firms actually do day-to-day. Many people use the word literally when they mean figuratively. I actually mean literally in this case. Comparing HFT firms to banks selling mortgage-backed securities is like comparing your local florist to a drug cartel. In fact, it's probably more like comparing a piece of wood to drug cartel. They're entirely different things. HFT firms don't even sell anything.
> Precedent matters. When an assertion violates a precedent, it's what must be proven.
The precedent you name is totally irrelevant. It's like saying since drug cartels do illegal things (they do), then this piece of wood lying on the ground in the forest is also breaking the law by existing. That's how disconnected the two things you're comparing are, but, again, since you literally have no clue what HFT firms do, you don't even understand that.
> Your assertion has the burden of proof, and it's an incredibly high one at that.
Wrong. You can claim that, but like all of your other claims, it's entirely false.
> Medallion is one of the most well regarded and profitable hedge funds in modern American history. It's a grandfather to modern HFTs. Even its sterling record is highly suspect.
I truly don't think you're even reading what I'm writing, or if you do, you keep moving the goalposts (not that it helps your case--you're still 100% wrong regardless of how much further you try to move it). HFT firms are not hedge funds. Stop comparing them to hedge funds, unless you think comparing a piece of a wood to a drug cartel is a useful comparison, in which case there's no point in talking anymore.
Also, "The Medallion fund [...] is a grandfather to modern HFTs" is such a vague and meaningless statement. Sure they have some algorithms, but lots of investment firms do. So what?
But if we follow this absurd line of reasoning, if your grandfather committed a crime (which even in this analogy, they didn't), does that mean that their grandchildren do also? Of course not.
> Smart people need to spend their time on engineering, medicine, and research. The amount of human capital wasted on silly little financial machinations these days sickens me. I go back and read about financiers jumping from building back in the 20s and I understand it completely.
This is a totally reasonable opinion, but entirely divorced from the question of whether or not HFT commits fraud. Again you have provided literally (not figuratively, but literally) zero evidence to back up your claim.
Your entire argument seems to be:
- Some financial firms have done bad stuff in the past
- HFTs are financial firms (sort of, but whatever)
- Therefore HFTs must be committing fraud
That's literally your argument as far as I can parse it. If you read that, that's just so patently absurd that I don't think I can do anything more to highlight how absurd it is. Its absurdity stands on its own. Maybe something like:
- Some people have committed crimes in the past
- You're a person
- Therefore you're a criminal
Sooner or later (spoiler alert: sooner) someone would put it on the Internet, and it would be unregulated, at least at first, and the insiders would do even better than they are now.
You should read up on the early days of ECNs, Island and Archipelago and what not. Alternatively, you could look at this exact script being played out in crypto right now.
You are begging the question. Why should a market reflect that? Why is that preferable to a daily auction (throw in a stochastic cut-off time to thwart HFT even more)?