[HN Gopher] Understanding Jane Street
___________________________________________________________________
Understanding Jane Street
Author : mxtihvb
Score : 599 points
Date : 2022-08-02 02:45 UTC (20 hours ago)
(HTM) web link (www.thediff.co)
(TXT) w3m dump (www.thediff.co)
| JackFr wrote:
| > it's hard to argue with success: Jane Street earned $6.3bn in
| the first half of 2020, up more than 10x from the year before ($,
| FT).
|
| 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.
| [deleted]
| logicchains wrote:
| Apparently most of that came from arbitraging bond ETFs and
| bonds. The spreads started to diverge in early 2020 when covid
| was just coming out, and Jane Street had the balls (and cash)
| to hold until the spreads converged. Helped significantly by
| the US fed pumping a bunch of money into the market.
| joshsyn wrote:
| Ntrails wrote:
| > the winners get a job from which people routinely retire rich
| in their 30s
|
| 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?
| mupuff1234 wrote:
| What tax do these type of companies pay?
|
| I'm gonna guess they aren't paying the "retail" short term
| capital gain tax.
| missedthecue wrote:
| -
| JohnJamesRambo wrote:
| Why should that be less?
| dcolkitt wrote:
| Yes, they pay short term capital gains taxed as ordinary income
| for equities. For futures they pay a blended 60/40 long-
| term/short-term rate, since all the futures trading is taxed
| that way (including for retail)
| zellix wrote:
| Pretty much, except for Susquehanna. See
| https://www.propublica.org/article/jeff-yass-susquehanna-
| tik... for details.
| ocfnash wrote:
| Assuming it is accurate, the final sentence in this article
| is especially notable.
| nly wrote:
| They'll have their cost centers in places like NY and London
| incorporated separately, making consistent losses, and then the
| arm doing actual trading will be in Bermuda or somewhere with
| 0% business tax.
| red2awn wrote:
| Under this structure, how are trading profits shifted to the
| cost centres to pay for operating expenses?
| JonChesterfield wrote:
| Licensing IP would probably do it. Oh, the other direction
| - just make some returns in the place with operating costs.
| p4bl0 wrote:
| The first argument made in favor OCaml is very similar to Paul
| Graham's Beating the average
| (http://www.paulgraham.com/avg.html), if anyone wants to read
| more about that kind of reasoning.
| badpun wrote:
| Curious how people are so interested in Jane Street, ostensibly
| because they do technically challenging work, but much less so
| about other places where the work is at least just as
| challenging, but the money sucks.
| benreesman wrote:
| You're curious about how people would choose between two
| equally interesting jobs where one pays a lot more? I'm curious
| about how anyone could be curious about that.
| badpun wrote:
| I mean stuff is either interesting for someone or it's not.
| Money is not relevant to being interested by something.
|
| 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.
| lhnz wrote:
| There's nothing wrong with pursuing money.
| robertlagrant wrote:
| Money does make some things easier. People make job choices
| based on:
|
| - 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.
| polio wrote:
| Prestige matters to young people, because it helps them date
| and find social networks.
| draw_down wrote:
| anonu wrote:
| You answered your own question...
| benreesman wrote:
| I find this stuff fascinating, and this article is way above
| average for online posts about
| proprietary/algorithmic/quantitative/low-latency trading (very
| leaky Venn diagram there). I have a few nitpicks but overall it's
| informative and it's an interesting format: viewing an industry
| through the lens of a particular firm, especially one as
| fascinating as Jane. Anything that develops literacy in modern
| finance amongst the lay public is a good thing in my book.
|
| 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.
| paulpauper wrote:
| _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.
| benreesman wrote:
| Oh yeah, RenTech is just fascinating, and the opacity only
| lends to the mystique around it. People are talking a lot
| about how hard it is to get a gig at Jane, and AFAIK it's
| fucking hard, but one of the best mathematicians who was also
| a super-hacker I've ever met crushed the Jane interview and
| got bounced out in the RenTech screen.
|
| 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.
| Inconel wrote:
| In addition to RenTech, TGS is another intriguing place
| that mostly flies under the radar and from all rumors seems
| to have been fantastically successful over 3 decades. It'd
| be very interesting to hear about other less known firms
| with stellar, albeit likely smaller in absolute terms,
| levels of success.
| VirusNewbie wrote:
| TGS is just weird. Friend of mine making very good money
| at staff level had them reach out to get him to come
| interview, saying they would at least double his comp.
|
| Another friend at G said the "smartest person in the
| office was poached by this company TGS, have you heard of
| them?"
| chucksmash wrote:
| Had "The Man Who Solved The Market: How Jim Simons Launched
| The Quant Revolution" on my shelf for several years as an
| out-of-the-blue birthday present but I finally got around
| to reading it earlier this year and I'd absolutely
| recommend it.
|
| The emphasis on published work rang a bell, but thumbing
| through the book I can't find it off hand.
| benreesman wrote:
| I enthusiastically second "The Man Who Solved The
| Market".
| nly wrote:
| It's probably pretty easy to keep the returns on a pot as
| small as $10bn sweet if you just reserve all your best alphas
| for that fund. There are proprietary trading firms trading
| pots that size for a single shareholder.
|
| 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.
| jeffreyrogers wrote:
| They were successful long before they had those public
| funds though.
| carnitine wrote:
| To even have those 'best alphas' in the first place and
| then select them in advance for your best fund is the
| impressive part. The returns are insane even if the fund is
| capped.
| bko wrote:
| I would recommend the book The Man Who Solved the Market
| about Medallion founder Jim Simons. It doesn't go over the
| strategy extensively but goes through the history and culture
| of the firm. From reading it I would attribute their
| performance to execution. They have an incredible pipeline
| and hire almost entirely engineers and scientists. They have
| a rigorous scientific method in finding and executing on
| signals. And they've resisted taking more money and earning
| more on the management fee, opting for performance.
|
| 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.
| melony wrote:
| Since this is Hacker News, let's not beat about the bush.
| Here's a channel that actually go through derivatives pricing
| without hiding the math:
|
| https://youtube.com/c/QuantPy/videos
| benreesman wrote:
| Thank you kindly for what looks like a great resource!
|
| 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.
| thornewolf wrote:
| Followed quantpy tutorials to implement my own black scholes
| and heston pricing models last year. Highly recommend.
| lordnacho wrote:
| Whenever the topic comes up, I throw out a reference to
| Hull's Futures, Options and other derivatives, Wilmott's
| Quantitative Finance, and possibly also Taleb's Dynamic
| Hedging.
|
| 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.
| blitzar wrote:
| Hull's Futures, Options and other derivatives was on the
| bookshelf of a friend who worked at JS - it was their
| bible.
|
| 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.
| adament wrote:
| If you come from a pure math theory first background I
| would advise starting out with Bjorks "Arbitrage theory
| in continuous time", I personally found the lack of rigor
| and superfluous examples in Hull frustrating and found
| Bjork much more approachable then you can look into Hull
| for real life practicalities like daycount conventions,
| etc. If you want to go into complex derivatives pricing I
| would advise looking at the Andersen and Piterbarg
| trilogy.
| pvitz wrote:
| I would also suggest to forget about Hull and Wilmott and
| would suggest to start with the excellent book by Shreve:
| "Stochastic Calculus for Finance. Volume II: Continuous
| Time Models".
|
| 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.
| dash2 wrote:
| I'd say that Shreve and Musiela lack rigour and are too
| focused on trivia, name-dropping and anecdotes. Jiao's
| "Infinite-dimensional methods in amassing vast bags of
| gold" is unsurpassed. For its coverage of Black-Scholes,
| I'd also recommend Schulz's "Good Grief, Charlie Brown".
| Sorry, everyone seemed to be doing this so I felt I
| should contribute too.
| gcapell wrote:
| I honestly can't tell exactly when the thread meandered
| into satire.
| bob29 wrote:
| I find a lot of value in the analysis put forth here
|
| https://www.jwz.org/blog/
| keithalewis wrote:
| My writeup: https://keithalewis.github.io/math/um.html for
| modeling and https://keithalewis.github.io/math/uf.html on
| now to more accurately reflect the real world. I have
| taught Derivative Securities at NYU, Columbia, Cornell, and
| Rutgers over the past 14 years, but my day job is turning
| math into software that produces numbers people running a
| business will pay for. The textbooks are missing some
| important things.
| matred wrote:
| Nicely organized and dense.
|
| Thanks for the material!
| data_maan wrote:
| I find the article to be a poorly written piece of propaganda
| for Jane Street as you could change "Jane Street" for "Citadel"
| for example and entire paragraphs would still be true.
|
| > 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.
| murbard2 wrote:
| Having worked as a quant GS on HFT, +1 on Flash Boys being
| criminally stupid at best and bad faith at worst.
| ivanech wrote:
| +1 to Trading at the Speed of Light. A great read, particularly
| for any engineer curious about clinging to the limits of
| physics. An example: microwave towers are used to beam data
| from Chicago to New York because it's faster than fiber optic
| cables. Even crazier: these microwave towers have their
| repeater hardware at the top of the tower (microwave towers
| usually have it at the bottom) so that they don't lose time in
| wires going from the top to the bottom.
| Bluecobra wrote:
| Even microwave is slow, they are using shortwave radio for
| certain signals. Maybe neutrinos are next?
|
| https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-
| tr...
| samatman wrote:
| I'm not sure what's going on with this comment so let me
| make three observations:
|
| 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.
| dejerpha wrote:
| Neutrinos don't need to go around the earth, so in theory
| you have a pi/2 advantage over an EM signal when sending
| to an antipodal location, for instance. In practice of
| course, throughput is utterly horrible for the reason you
| indicate.
| Scoundreller wrote:
| All you need is a couple bits, but yeah, making sure it's
| the neutrino your buddy sent and not some other one is
| where it gets complicated.
| simiones wrote:
| I think neutrino detectors capture at best something like
| 10 neutrinos per year or so, so the throughput would be
| _severely_ limited.
| samatman wrote:
| This assumes that neutrinos aren't slowed by a dense
| medium as light is.
|
| That's a maybe. Still, good point.
| SamReidHughes wrote:
| We already fire neutrino beams through the Earth's crust,
| and they travel at the speed of light, and the core isn't
| that much more dense.
| pushrax wrote:
| Shortwave radio can be transmitted around the curve of
| Earth by ionospheric reflection and refraction so fewer
| repeaters are needed. This allows crossing vast oceans
| where microwave infrastructure might not be possible.
|
| As you say the downside is available bandwidth and
| throughput.
| Scoundreller wrote:
| That's why most markets close during night time.
| matred wrote:
| No it isn't.
|
| 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.
| vlovich123 wrote:
| I think they're probably asking about US markets. Afaik
| those do close at business hours and I'm not sure how
| after hours trading happens but it might not be available
| to most people.
|
| 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).
| samatman wrote:
| Another good point, and one I thought about before
| replying, but that doesn't make microwaves slower, it
| makes them inapplicable.
| pushrax wrote:
| In theory having fewer repeaters improves latency,
| probably in the range of 100ns per repeater. I don't know
| how much of a practical effect that has, likely very
| minimal with modern implementations.
|
| Either way it's more sensible to build high throughput
| microwave networks given the tiny amount of shortwave
| bandwidth we have.
| gautamdivgi wrote:
| A 2019 article on the various companies competing for this
| [0]
|
| 0. https://www.bloomberg.com/news/features/2019-03-08/the-
| gazil...
| bmitc wrote:
| > 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.
|
| 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.
| fossuser wrote:
| The author is Byrne Hobart: https://twitter.com/ByrneHobart and
| his substack The Diff is just generally great.
| JackFr wrote:
| Michael Lewis is a great writer, but the closer you are to the
| subject the more his shortcomings are exposed. I felt the same
| way about The Big Short and to some extent Liar's Poker. He has
| an annoying tendency to assume that if he doesn't understand
| something, either it's completely inscrutable to everyone or
| simply BS.
|
| (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.)
| FabHK wrote:
| While I agree that _Flash Boys_ was below par, what 's wrong
| with _The Big Short?_ I thought that was well done,
| accessible, and largely accurate.
| JackFr wrote:
| I think it's probably because I was there for it. His
| construction of the narrative, while better than many
| (including many straight journalists) ends up sort of
| falsely casting people into hero/fool/villain roles that
| make the book work as an entertainment, but don't fully
| hold up.
|
| 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.
| adamsmith143 wrote:
| But wasn't the point of the Big Short to show the
| perspective of people "outside" the mainstream who made
| big bets against the system/banks? Not surprising then
| that it didn't really show what was happening in the
| banks themselves.
| refulgentis wrote:
| No, the book is very different from the movie, I'd say
| it's almost the opposite in that it was mostly narrated
| from the perspective of the banks.
|
| 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 "
| mooreds wrote:
| I liked The Big Short.
|
| 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.
| JackFr wrote:
| Tanta was the _ABSOLUTE BEST_ writing on the financial
| crisis as it was happening. You 've made it when Federal
| Reserve Bank of NY cites your blog in a footnote in their
| research report.
|
| https://www.newyorkfed.org/medialibrary/media/research/st
| aff...
|
| The CR blog was not the same after she passed away.
| FabHK wrote:
| Agreed, Calculated Risk was required reading at the time.
| So much insight.
|
| (On Tanta's passing:
| https://www.calculatedriskblog.com/2008/11/sad-news-
| tanta-pa...)
| gadders wrote:
| Liar's Poker was autobiographical, though. He should have got
| that right :-)
| the_watcher wrote:
| The Diff is easily one of the best value's I get despite being
| >$200/year. I'm not sure how I'd rank it relative to
| Stratechery, I personally enjoy The Diff more but Stratechery
| is more relevant to my work and is also excellent. Byrne churns
| out an all-timer like this every other month or so, and his
| average posts still consistently include the best sentences I
| read of the day. It's one of the only newsletters that, if I
| get behind on reading it, I make sure I catch up on every
| missed issue.
| j7ake wrote:
| Regarding the last point in working at Jane Street versus
| research on fusion/cancer:
|
| 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.
| tester756 wrote:
| >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.
|
| 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
| doliveira wrote:
| I know we're supposed to assume the best interpretation, but
| I'm struggling to imagine how can someone think this is a
| reasonable comment other than through self-deception.
| amelius wrote:
| Broken window fallacy.
|
| Nice try to justify your bullshit job, though.
| adamsmith143 wrote:
| I think you are wildly underestimating the cost of running a
| world class lab.
|
| 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.
| benreesman wrote:
| Not to mention that tightening spreads, deepening books, and
| equalizing prices across regulatory/financial/geographical
| regimes is a pretty serious social good in its own right.
|
| 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.
| spoonjim wrote:
| If you're going to hold AAPL longer than a quarter, then the
| tick vs. 1/8 doesn't matter, and if you're not, your trade
| doesn't need to happen to support the core goal of financial
| markets which is to finance companies.
| esoterica wrote:
| If the only people who trade AAPL plan on holding it for 10
| years then by the time they want to sell it there will be
| no one to buy it from them, since the probability that
| someone else will want to make their once-every-10-years
| trade at the exact same time is zero. In order for long
| term investors to function they need liquidity to enter and
| exit positions.
| jaycroft wrote:
| But it doesn't have to happen at the exact same time?
| Limit orders exist, no?
| FabHK wrote:
| Further: Suppose you had an auction on shares once an
| hour, or even once a day, but no continuous trading.
| Would that make the world any worse off? (except for high
| frequency shops?)
| em500 wrote:
| I doubt it. I've never heard a coherent explanation how
| liquidity on sub-second scale is a great social good,
| while at the same time the largest equity markets in the
| world are closed 2/3rd of the day, plus all weekends and
| holidays.
| SnowHill9902 wrote:
| Because real world information has sub-second resolution
| and a healthy market should reflect that. It's a
| continuous auction. Some markets are open longer such as
| FX.
| FabHK wrote:
| > and a healthy market should reflect that.
|
| 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)?
| SnowHill9902 wrote:
| Because you can't make sure that all auctions happen at
| the same time. Consequently, news will disproportionately
| affect stocks having an earlier auction. That's just one
| reason I'm mentioning.
| em500 wrote:
| The NYSE is closed between 16:00 and 9:30, plus all
| weekends and bank holidays. AFAICT real world information
| doesn't stop in the closed hours. So how is it credible
| that it's super valuable that trades can happen during
| the open hours at sub-second resolution, but we're
| suddenly ok at 16:00 with a 17.5 hour resolution?
| SnowHill9902 wrote:
| Trades do happen off-hours just OTC.
| benreesman wrote:
| I mean, what you're describing is how to create a black
| market in securities for people who want to act on news,
| knowledge, or sentiment before tomorrow's auction.
|
| 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.
| lightbendover wrote:
| While not the spirit of your question, I would love to
| see the system that could resolve global NYSE hourly
| demand at an hourly cadence.
| 1980phipsi wrote:
| But what if you hold a mutual fund that bulls and sells
| AAPL regularly as part of managing inflows and outflows?
| SnowHill9902 wrote:
| That's a moralistic positivistic take on a real friction
| problem which has been reduced. It doesn't matter what
| people use the market for.
| kasey_junk wrote:
| You are really going to need a citation to back up that the
| core goal of financial markets is to finance companies.
|
| 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.
| notahacker wrote:
| Markets in equities exist because companies want finance
| enough to be willing to sell the equity. Not sure why
| something that elementary needs a citation.
|
| 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.
| matred wrote:
| I'm not sure you're reading that correctly, since the
| response concerned the idea that the core goal of
| financial markets is X, and you respond with a statement
| on equities markets, which by definition only concern
| financing companies.
|
| 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.
| notahacker wrote:
| I was replying to a post talking about secondary market
| share trading replying to a post about the value of
| liquidity in AAPL, so in context it seemed clear equities
| were the market under discussion
|
| 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)
| benreesman wrote:
| You're the best kind of correct, which is technically
| correct. But what I said is that "multiplied by every
| retirement account we're talking real money". Which is no-
| qualifiers correct.
|
| 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.
| cycomanic wrote:
| > But in general advanced actors are slicing strips of
| meat off of each other to the benefit of 401ks
| everywhere.
|
| 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?
| benreesman wrote:
| As I've mentioned elsewhere in the thread, it's
| notoriously difficult to get citations on this stuff so
| take with a grain of salt, but I've heard that in 2019
| the "HFT" industry (defined some way) had cumulative
| annual profits in the US of somewhere between 2-4 billion
| dollars. That's a long holiday weekend for Google or FB.
| I've also heard that this (inflation-adjusted etc. etc.)
| this is down sharply from ten years before, when spreads
| were wide and undocumented order types were winked at.
|
| 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.
| robocat wrote:
| > HFT industry annual profits 2-4 billion. That's a long
| holiday weekend for Google or FB
|
| 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.
| ivalm wrote:
| > That ETF that you should have your roll in? It's buying
| and selling securities all the time, and encountering
| friction along the way
|
| 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.
| benreesman wrote:
| I didn't think that a digression about the tax
| optimization opportunities of in-kind securities swaps
| would be enlightening to a general audience.
|
| 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.
| tomrmp wrote:
| Is Citadel paying 2X for PFOF on Robinhood vs Schwab
| because it is dumb retail flow or due to increased
| optionality because it is inherently built in slow
| transmission flow to reach the execution platform?
| spoonjim wrote:
| I would suspect that almost zero people do this because working
| in an environment changes who you are as a person. If you spend
| a lot of time around cancer researchers you will think that
| cancer research is the most important thing in the world. You
| would need almost monastic mental compartmentalization to work
| at Jane Street for N years and remain singlemindedly focused on
| cancer research.
| stackbutterflow wrote:
| I thought about that often. Why are highly intelligent,
| passionate young activists not working into the industries
| they despise to change the system from within. But you're
| right that the system you're in changes you, corrupts you.
| You'd have to sacrifice a lot to climb the corporate ladder,
| doing things you despise, just for the chance to blow things
| up years, decades later. Your idealists friends would
| distance themselves from you. You'd have to constantly remind
| yourself that you're doing wrong things but that it's ok,
| because it is part of a bigger plan. It would be very
| isolating. You'd probably sacrifice your sanity for a foolish
| plan.
| spoonjim wrote:
| Most people think that their values come from some immanent
| "Self" but in reality our values mostly come from our
| surroundings. The same baby with the same genetics raised
| in Broken Arrow, Oklahoma vs. Upper West Side New York will
| have extremely different values, go farther than that and
| the difference in values is almost unrecognizable. If you
| or I grew up in wealthy families in ancient Greece, we
| would think NOT owning slaves was weird and suspicious.
| nly wrote:
| Or suffer a loss to cancer. That changes kinds quickly too
| govg wrote:
| Tangentially related is the movement of Effective Altruism,
| which is basically espousing taking a high paying job and
| then using the rewards to make a change.
| spoonjim wrote:
| The existence of a "movement" makes it much more likely to
| succeed. If you are working at Goldman Sachs during the
| day, you need to be talking to Effective Altruism friends
| at night, or you will almost certainly be washed away in
| the current of Goldman Sachs value systems.
| PoignardAzur wrote:
| I'd temper the above statement a bit. The "get rich, then
| donate a lot" strategy is _one_ of the paths popular in
| Effective Altruism.
| llaolleh wrote:
| "He who fights with monsters should be careful lest he
| thereby become a monster."
| oblio wrote:
| "Battle not with monsters, lest ye become a monster, and if
| you gaze into the abyss, the abyss gazes also into you."
| Nietzsche
|
| Don't cut out the best part of the quote :-)
| uniqueuid wrote:
| That sounds as if you can jump into a field without spending
| 10-20 years of learning and do cutting-edge research. I'm not
| sure whether someone who has done quant finance can make
| meaningful contributions to the actual science. So if your role
| ends up spending money and doing top-level management, why not
| just fund companies that do and stay in finance?
|
| [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.
| mellavora wrote:
| > as if you can jump into a field without spending 10-20
| years of learning and do cutting-edge research.
|
| I know multiple people who have done this.
|
| If you want a famous person, look at Paul Erdos. 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.
| pinerd3 wrote:
| I agree that a smart, ambitious person can become expert in
| more than one field in their life -- but jumping to a new
| area of mathematics is on an entirely lower level than
| jumping from algorithmic finance to cutting edge
| biomedical, especially at the time Erdos was working.
| kyawzazaw wrote:
| There are a few people who did a complete switch to study
| rare diseases with no background.
|
| 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
| adamsmith143 wrote:
| >Taleb
|
| 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.
| matred wrote:
| I've never see his research brought up amongst quants or
| traders, but I like his writing.
|
| Does anyone who works in this field know of it being
| currently applied?
| kenned3 wrote:
| I spent most of my career in finance including a hedge
| fund and several international banks.
|
| 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.
| data_maan wrote:
| I think Hawkin's work (including things done at Numenta, his
| company) is highly controversial in neuroscience. I have read
| some of the articles and claims and the biggest issues is
| that he produces a lot of vision papers, that contain no
| actionable models and thus ultimately are useless.
|
| So either he's withholding whatever concrete insight he
| found, or he hasn't found it yet - I believe the latter is
| more likely.
| andbberger wrote:
| whatever you may think about his work, he founded redwood
| and they do incredible work
| adamsmith143 wrote:
| Jeff Hawkins probably also had a several Hundred Million
| Dollar payout. That's in a totally different class than a
| Quant who cashes out at 30 with MAYBE $10M in the bank.
| serioussecurity wrote:
| Hawkins is a notorious con artist with nothing to show for
| almost two decades of work.
| uniqueuid wrote:
| I can't judge that from an outside perspective, but to be
| fair, having nothing to show for two decades of work is an
| intrinsic occupational risk of science.
| adamsmith143 wrote:
| > I can't judge that from an outside perspective, but to
| be fair, having nothing to show for two decades of work
| is an intrinsic occupational risk of science.
|
| How? In today's academic environment you won't survive
| even a few years without publishable research results.
| uniqueuid wrote:
| Oh you can publish innumerable things whose content is
| nothing to show for, yet you publish something :)
| j7ake wrote:
| You're overestimating the technical skills needed to do
| cancer research: there's a reason why many wet labs allow
| high school students to come and help with research. It's
| mostly grunt work and whatever technical skills can be
| learned by a high school student over a summer.
|
| 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.
| data_maan wrote:
| What good has Jane Street done to a person living in
| Madagascar?
|
| 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.
| ChadNauseam wrote:
| What good has cancer research done to a person living in
| Madagascar?
| data_maan wrote:
| So you've established: People in Madagascar don't get
| cancer.
| selimthegrim wrote:
| Well given the periwinkle was found there, not entirely
| without merit.
| shakow wrote:
| Well, they don't get cutting edge treatment for sure.
| harha wrote:
| Nope, just no treatment (not fact checked of course, but
| it sounds likely that they wouldn't get top notch
| treatment that an average person say in Western Europe
| could expect)
| data_maan wrote:
| It seems none of the people that posted here understood
| the intention of my comment: The parent comment by
| ChadNauseam implies that Madagascar citizens somehow
| would not benefit from cancer research (they would!),
| which could only be true if they don't get cancer. In my
| comment I pointed out this last end of this logical chain
| of conclusions to show how ridiculous the parents' post
| was.
| orbifold wrote:
| I think it is fair to say that most people discussing
| Madagascar here, have no conception of how it is like to
| live there.
| badpun wrote:
| What has a baker living down my street done for a person
| living in Madagascar?
| geodel wrote:
| Well, that person can now learn Ocaml because Jane Street
| uses Ocaml.
| robertlagrant wrote:
| What good has your comment done to a person living in
| Madagascar?
| bglazer wrote:
| I do cancer research. You're right, the technical skills
| for basic wet lab stuff are not hard to learn. The hard
| part of cancer research is not learning how to pipette,
| it's learning how to ask and investigate worthwhile
| questions. Experimental design is subtle and requires wide
| ranging knowledge of sources of biological and technical
| confounders. Growing cells might be easy, but do you know
| how to debug a fluorescence microscopy experiment; in fact,
| do you even know how to recognize that it needs to be
| debugged? This is stuff you can learn over the course of a
| few years in a phd program, but it takes longer to become a
| true expert. Finally, what do you investigate? Cancer? What
| tissue type, which cell type, which proteins, DNA
| structures, or RNA structures are most important and least
| understood? Just absorbing a small fraction of the
| literature so that you don't ask stupid or boring questions
| is a lifelong task.
| TrackerFF wrote:
| > 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.
|
| Might be one of the more arrogant things I've read. And I
| frequent WallStreetOasis.
| j7ake wrote:
| Are you up to date with the current state of Alzheimer's
| research ? Much of it has been shown to be fabricated ie
| average alzheimer researcher has probably made zero
| impact.
| https://www.science.org/content/article/potential-
| fabricatio...
|
| 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.
| fiprofessor wrote:
| It's wildly inaccurate to say that _much_ of Alzheimer 's
| research has been shown to be fabricated. The article you
| link to is about one person's work. Even though he is a
| very influential researcher, there must be at least
| thousands of people doing research on Alzheimer's
| disease, if not more.
| pyb wrote:
| I wonder if this is somewhat representative of what JS
| workers think, or not ?
| uniqueuid wrote:
| But that's not the interesting part, right? That would be
| like saying that tech is simply assembling prototypes. The
| really interesting decisions are the strategic ones that
| require both a high-level overview of the opportunity
| landscape and some foundational knowledge of its
| feasibility. Or am I mistaken and it's simply brute force
| trials?
| j7ake wrote:
| Yeah you're right. My point is that the technical bar for
| entry is low, and can be attained maybe by spending one
| year in a top lab. You then skip the hazing ritual that
| is the PhD and postdoc and directly start your own small
| lab.
|
| 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.
| mattkrause wrote:
| The bar for _doing_ some experiments, in an environment
| with tons of logistical, technical, and intellectual
| support, is indeed pretty low. A high school student
| could certainly learn to run a gel in a week or two;
| patching a neuron might take a few months.However, the
| physical "act" of collecting data, especially in the
| happy case where all of the conditions have been worked
| out and the results look "as expected", is a very small
| part of being a scientist.
|
| 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?
| j7ake wrote:
| Long postdocs are a modern phenomenon due to the
| oversupply of biomedical researchers. Historically people
| did shorter PhDs and skipped postdocs. There are stories
| of old timers saying they got their faculty position
| based on just one or two papers, unthinkable these days.
|
| 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.
| geoalchimista wrote:
| > It's mostly grunt work and whatever technical skills can
| be learned by a high school student over a summer.
|
| 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?
| arcturus17 wrote:
| So you can do break-through research after having done a
| little bit of wet work in a cancer research institute, as a
| 30-year old who has been coding quant systems for a decade,
| and then become equivalent to a PhD in the field?
|
| 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?
| pyb wrote:
| By now, finance and FAANG have minted a very large number of
| tech millionaires. So, in practice, you have you ask yourself
| why ~nobody has actually done what you say. Personally I don't
| think it's because of a lack of funds.
| amelius wrote:
| Bill Gates?
| pyb wrote:
| We were talking about retiring at 30 to do science, not
| retiring at 50 to fund science
| mikaeln wrote:
| Very easy to plan in theory.In reality, if you've been at a
| place like Jane Street for 10 years you mostly likely will only
| leave if you are retiring.
| nharada wrote:
| "Make a ton of money and donate it all" is an impactful way to
| maximize good.
|
| It's also something that people almost never seem to execute,
| usually it ends with "make money and donate a small amount of
| it".
| Donckele wrote:
| The article should not have delved into this as its a can of
| worms - stick with the industry, programming and math.
|
| 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 .
| data_maan wrote:
| For some reason articles on hedge funds bragging about
| intellectual abilities if their employees always seem to
| invoke these professions (chess champion, concert pianist).
|
| I'm still waiting to see them bragging about having top
| proctologists in their team ;)
| robertlagrant wrote:
| > I'm still waiting to see them bragging about having top
| proctologists in their team ;)
|
| They tend to be on the regulatory side.
| SilverBirch wrote:
| >the winners get a job from which people routinely retire rich in
| their 30s, and the losers... don't
|
| 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.
| mkl95 wrote:
| > 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.
|
| 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.
| TrackerFF wrote:
| Yes, all depends on how you spend your money. $5m will get
| you something decent in Manhattan, but you could live like a
| King somewhere else. I have a friend that retired off just
| over $1m as he moved back to his small hometown. House cost
| $30k, drives the same car for 15 years, lives frugally.
| darkwater wrote:
| If you live in a place where a house costs $30k and on top
| of that you live frugally, you can probably retire with
| half of that already.
| altdataseller wrote:
| What would you do with $5m?
| mabbo wrote:
| > People who are driven and smart don't suddenly earn their
| first $5m go off and buy an annuity
|
| 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
| baby wrote:
| The thing is, if you end up in a job that pays this well it's
| because you're either very lucky (and congrats to you) or
| you're very passionate. If you're in the latter category why
| would you retire when you're being paid to do what you love?
| mabbo wrote:
| > it's because you're either very lucky (and congrats to
| you) or you're very passionate.
|
| 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.
| greatpostman wrote:
| This isn't true. It's most likely because you went to an
| Ivy League school
| UncleOxidant wrote:
| Hence lucky to have been born to wealthy parents.
| UncleOxidant wrote:
| Passions change. Also, I'd guess most CS grads going to
| work for JS aren't passionate about stock trading/market
| arbitrage - they're passionate about the pay or maybe
| OCaml, but the actual thing that JS does, probably not - it
| seems hard to be passionate about in and of itself (would
| someone work there for free because they were having so
| much fun?). And even if someone might be initially, they
| likely won't be after 5 years and enough money to retire on
| comfortably.
| Ekaros wrote:
| I think there is also a big question of what sort of spending
| habits these people have acquired. Their peers are making lot
| of money. And I doubt everyone is extremely frugal. Margin Call
| I think gave pretty good example how some in other firms might
| be spending their income.
|
| Stepping down and just starting to live on annuity might not
| fit to what they have come to expect.
| keiferski wrote:
| The relevant scene: https://youtu.be/xW1CrQu_H6E
|
| Great film.
| matred wrote:
| The culture of HFT (CS/JS/CHI.*/Optiver/IMC) is not
| 80/90/2000's IB.
| ThinkBeat wrote:
| It is possible that people who chose to retire after they feel
| they have enough people to do it, would not be noticeably
| visible. Why spend time covering a guy who has retired and
| living a quiet life?
| thesausageking wrote:
| It's very, very common for rank and file prop traders to retire
| in their 30s. Some are ambitious and start their own firm or
| keep doing it, but many decide $10m/$50m/whatever is enough and
| leave the industry. They likely got into it just to make money,
| not because they loved it, so once you have enough, why keep
| going?
| altdataseller wrote:
| " 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."
|
| 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
| benreesman wrote:
| I think the author meant "could retire very comfortably in
| their 30s", and you're correct to point out that's not what it
| literally says.
|
| 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.
| _fat_santa wrote:
| > 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 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.
| qez wrote:
| > But as for "could"? Shit you can do that at Google,
| Microsoft, Amazon, Meta
|
| Yes, these are some of the highest paying companies on the
| planet. Your statement is not a put-down of Jane Street.
| fiprofessor wrote:
| > _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._
|
| 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).
| ironyman wrote:
| Allegedly they use it because it's "readable" by both tech
| and traders. I don't really buy that; I think the real
| reason is that one of the founders used it because they
| liked it, and now they have all this legacy stuff laying
| around that's too expensive/time consuming/risky to
| replace. I hear TGS is stuck with their Fortran stack
| precisely for this reason.
| bitcharmer wrote:
| Having worked in HFT for well over a decade now, I'd say
| OCaml is more of a deterrent than helps in getting access
| to larger pool of talent.
| JonChesterfield wrote:
| Every few months or so I run out of patience with C++ and
| wonder about the alternatives, of which there seem to be
| very few in HFT. Jane Street stands out for that reason.
| It's a smaller talent pool but I don't think it's a
| subset of those that the C++ shops can attract.
| bitcharmer wrote:
| Rust is getting pretty popular among low latency firms.
| Many of my peers (myself included) would definitely show
| interest in a rust shop. OCaml - not so much.
| nequo wrote:
| > OCaml - not so much.
|
| Is that only because OCaml has more of an FP flavor, or
| is it something else about the language?
| fiprofessor wrote:
| That makes sense to me. But, in light of that, the ones
| who _do_ go to Jane Street are relatively more likely to
| be interested in their tech stack and OCaml, as opposed
| to wanting to "test themselves" in the "adversarial
| setting" that the post I quoted describes. In contrast,
| the couple of people I know who went to HRT or Jump
| Street are much more like that description. They
| deliberately targeted HFT work, whereas Jane Street has
| more people who "fell into it" because of this outside
| interest.
|
| 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.
| nickparker wrote:
| Jane Street recruits silly hard from Cornell's CS dept
| because part of our required curriculum is functional
| programming w OCaml. They definitely introduce a lot of
| math/cs kids to the idea that finance can be a meaningful
| technical challenge instead of just Dyson bros in
| spreadsheets.
|
| 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
| sudosysgen wrote:
| There are a lot of universities doing functional
| programming in either Haskell or OCaml as part of their
| curriculum right now, so I don't know if that's really
| the reason.
| tolkienfanatic wrote:
| Boy am I glad I never have to take 3110 again.
| steveBK123 wrote:
| Esoteric languages is often a good screener for good
| devs.
|
| 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.
| bitcharmer wrote:
| I'm struggling to understand how OCaml reduces the risk
| of bad hires and other languages don't.
| runevault wrote:
| Languages large swaths of the industry know (Java, C#,
| JS, Python, etc) include a subset of people who learned
| it purely for the job opportunities but aren't competent
| developers. The number of people who learn more niche
| languages like an ML or Haskell has a far lower % of
| people of that type.
|
| 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.
| bitcharmer wrote:
| I agree with this to some extent. However in case of
| firms like Jane or Citadel or Quadrature you have to have
| a well documented, long track record of accomplishments
| in various orgs before your CV lands on their desks.
|
| These companies hire from a different pool than you
| described.
| kyawzazaw wrote:
| I don't know if that is true. As a new grad, I got
| invited to interview for Point72, Headlands Tech, HRT,
| Two Sigma. (although some of these are in a different
| "tier", and different business than Jane Street or
| Citadel).
|
| I definitely didn't have more special accomplishments
| than 2 typical internships and both were not FAANG.
| steveBK123 wrote:
| I should have been more specific in my trite original
| post. I think at the college hire / intern level, its not
| quite as useful as everyone is so green .. so people
| screen based on college / attempts at raw brainpower
| games with brain teaser puzzles and stuff.
|
| 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..
| carpfire wrote:
| While this may be true, JS explicitly says they don't
| expect you to come in knowing Ocaml. So the filtering
| hypothesis doesn't really hold.
| llaolleh wrote:
| This. If you want really good devs, they tend to play
| around with all sorts of things that don't necessarily
| have economical value. This includes esoteric programming
| languages.
| elcritch wrote:
| A larger talent pool isn't always better.
| howling wrote:
| > The other mitigation strategy is: just buy some puts.
|
| 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.
| adchari wrote:
| They don't really have to be losing in the long term, being
| short deep out-of-the-money puts nets you an option premium if
| the underlying never crashes, and once you delta-hedge that
| position, you can remove the tail risk from your portfolio
| imranq wrote:
| Nice article. It would be great to see a similar one about
| DeepMind
| smabie wrote:
| Generally good article that delves into how a market maker
| functions. Couple points:
|
| 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.
| jefftk wrote:
| _> EA isn 't really a dominant thing in the market maker space_
|
| 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".
| quickthrower2 wrote:
| Does a market maker consider another market maker "toxic" by
| your definition? I assume by "toxic" you mean too smart? Or do
| you mean they cheat?
| hackerlight wrote:
| "Order flow toxicity is the measure of a trader's exposure to
| the risk that counterparties possess private information or
| other informational advantages."
|
| 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.
| smabie wrote:
| Flow from other HFT / market makers is often very toxic.
| They are playing the exact the game as you.
| hchz wrote:
| Right, sure, and that game is not lifting the market,
| generally speaking.
| smabie wrote:
| Not aware of a market maker that also doesn't take
| liquidity as well. In fact, it probably would impossible
| to market make without also taking (you wouldn't be able
| to provide liquidity if your quotes were in cross with
| the market).
|
| That said market makers do a lot more making than taking.
| twic wrote:
| Other market makers are often moving away from something
| they've seen but you haven't yet. When whatever that is
| hits you, the fills you got from the other market maker
| will look really bad.
| matred wrote:
| Sure, but those short-term active strategies have little
| impact next to what big paper will lift in major macro
| markets.
| ReggieCommaRose wrote:
| Usually too smart, on rare occasion they cheat. MMs
| inherently deal with information assymetry and adverse
| selection because they generally stand ready providing
| liquidity with quotes out in the world (though obviously
| width matters). Toxic counterparties are parties who decide
| to trade against you who have a better idea about "true"
| price than you. They might make or they might not, depends if
| the degree in which they're right overcomes the spread they
| crossed. Other MMs can be (and often are) toxic.
| viet1 wrote:
| or doing latency arbitrage
| matred wrote:
| that falls into the category of knowing the "true" price
| better than you do
| paulpauper wrote:
| _). By setting up a structure such that you profit during a
| crash (either by selling puts, leaning net short, or through
| some other method), you introduce an uncorrelated return stream
| that can really help_
|
| 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.
| smabie wrote:
| Sorry I meant to say buying puts (and have edited comment).
| Buying puts is directional and has negative carry. That's
| often fine because when your puts aren't making money your
| market making strategies should be doing well and vice versa
| [deleted]
| julianeon wrote:
| Something I don't understand:
|
| 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.
| rcpt wrote:
| Then the article would have been about whoever beat them.
| nly wrote:
| It's not just like you can just have a few hundred lines of
| secret sauce implemented in Python and then go and fill your
| boots.
|
| 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.
| vecter wrote:
| I worked in High Frequency Trading over a decade ago (not Jane
| Street) so I have some insight into this. In general, markets
| are always evolving. I've seen a team of four traders that make
| $500k/day go down to $0/day over the course of 6 months.
|
| 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?
| wheelinsupial wrote:
| > They probably ate most of the former team's lunch.
|
| 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?
| vecter wrote:
| > _I'm assuming that teams wouldn't be sharing strategies
| with other teams. Is that accurate?_
|
| 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).
| lordnacho wrote:
| Because they are the ones arbitraging the gains away. That's
| why there's no opportunity left for you average punter to just
| start his own little script that take orders from one market
| and put them on another.
|
| 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.
| ithrow wrote:
| If lone wolf day traders can make good money why can't they?
| nly wrote:
| Over any sensible period of time, like a year, essentially
| all lone wolf day traders lose money
| badpun wrote:
| Lone wolf traders are satisfied in income in hundreds of
| thousands of dollars per year, while a large company wants
| millions or billions. There are way, way more opportunities
| on the market to make just a couple hundred k than to make a
| billion. In other words, a lot of the opportunities do not
| scale well.
| bitanarch wrote:
| Imagine someone outside of the tech community thinking along
| this line...
|
| "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.
| rgifford wrote:
| CPUs operate due to quantified phenomenon. They're well
| understood. They've been refined over nearly 100 years.
|
| 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.
| vecter wrote:
| HFT does nothing illegal. If you're going to make strong
| claims like that, it would be good to provide some
| evidence.
| rgifford wrote:
| A recounting of the recent history of US financial
| markets suggests, at least to me, that these firms have
| the burden of proof. If they haven't proven legitimacy
| and societal benefit, assuming fraud is a pretty safe
| bet. 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. Even Berkshire
| Hathaway pretty much tracks the S&P500 these days. And as
| for hand wavy platitudes about price discovery, I don't
| understand them in the least.
|
| 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.
| vecter wrote:
| > _If they haven 't proven legitimacy and societal
| benefit, assuming fraud is a pretty safe bet._
|
| 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.
|
| [0] https://news.ycombinator.com/item?id=32315419
| noitpmeder wrote:
| {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}.
|
| You can say this about a lot of companies today.
| rgifford wrote:
| Context matters. We were speaking in the the context of
| financial services. In that context, the past decade has
| been shooting fish in a barrel. You had to be an idiot to
| lose money with how index funds performed.
|
| 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.
| carnitine wrote:
| How exactly would this fraud work? Most HFT firms only
| trade their own capital and distribute gains internally,
| there's no one to defraud. Also it's been going on a lot
| longer than a decade.
| rgifford wrote:
| Market coercion, regulatory capture, negligence, or any
| other plain old market manipulation like pump and dump or
| insider trading or bear raiding, etc.
|
| 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.
| orange3xchicken wrote:
| At least on the quant side, I think the typical sentiment is
| that most researchers aren't interested in ops / developing
| infrastructure / curating datasets.
| Scarbutt wrote:
| How does that answers their question?
| simtel20 wrote:
| I think he's saying that a quant can work for a few years
| and retire unreasonably rich, or keep working at a place
| where they are well rewarded and everything works.
|
| 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.
| ReggieCommaRose wrote:
| Devil in the details. MMing is conceptually simplistic but the
| operational costs are huge and are generally getting worse.
| Making while fighting these costs against competition playing
| the same game as you turns non trivial real quick.
|
| 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.
| drpixie wrote:
| Like other investment options ... we tend to look at the
| successful few and assume that they know something special, or
| have something special. But over time, a few are just lucky and
| most are not, and we have no way of predicting luck :)
| hackerlight wrote:
| > Hell, their own former employees could theoretically compete
| against them
|
| 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.
| bob29 wrote:
| ReggieCommaRose wrote:
| Collectively they reduce friction and increase transparency for
| global information exchange. Obviously no one does it for
| purely altruistic reasons but the byproduct is (probably) net
| positive.
| ken47 wrote:
| They theoretically facilitate capital allocation by increasing
| liquidity and hence aid in price discovery, if they operate
| strictly within the market maker role. Whether it plays out
| like this in practice has been debated elsewhere.
| hackerlight wrote:
| They minimize rent extraction from pension funds by bringing
| scale economies to an industry that used to be manually and
| inefficiently provisioned.
|
| Evidence: the extinction of manual market makers, and the
| observed reductions in transaction costs, by virtue of
| increases in liquidity and reductions in bid-offer spreads.
| melling wrote:
| Thee article addresses this common question near the end. I
| like this part.
|
| "We don't demand that chess champions use their skills in
| something with more real-world applications, or that concert
| pianists find a more practical outlet for their manual
| dexterity and attention to detail."
| stefantalpalaru wrote:
| > "We don't demand that chess champions use their skills in
| something with more real-world applications, or that concert
| pianists find a more practical outlet for their manual
| dexterity and attention to detail."
|
| Maybe because chess champions and concert pianists don't
| hoard a significant amount of resources, depriving the rest
| of society of the means to thrive.
| immigrantheart wrote:
| bob29 wrote:
| Doubtful, perhaps its an example of ignorance but I hope any
| textbook isn't using my comment as a defintion.
| bthrn wrote:
| Market making is a very important role.
| orange3xchicken wrote:
| It sounds like you aren't really interested in a rational
| discussion by the second half of your post, but the typical
| arguments (incl in the post) for are that market makers reduce
| inefficiencies in the market & provide liquidity that
| significantly reduces the bar (i.e. make trading cheaper) for
| retail investors (like you or me) to trade.
|
| I think it is generally accepted that society does benefit from
| a modern and efficiently run market. Whether or not automated
| market makers contribute to this could be up for debate, I
| guess.
| Hammershaft wrote:
| I think the equation changes when you weigh the marginal
| utility that market makers provide against the social
| opportunity cost of allocating intelligence to these firms.
| bob29 wrote:
| I don't do stock market trading, but even those who do that I
| know of, are doing so via companies such as: Robin Hood,
| E-Trade, Fidelity, Charles Schwab, Vanguard...
|
| Are these "market makers" working behind the scenes to
| facilitate the operation of those retail facing companies? Is
| Black Rock buying all the real estate also good for
| (potential) retail investors like me? Because it's starting
| to feel like we're being told to cheer for those faciliting
| the ever-increasing wealth disparity of society.
| hackerlight wrote:
| > I don't do stock market trading
|
| You probably do, indirectly through an agency agreement,
| for example a pension fund that manages your money. Or even
| whenever you just buy an ETF to invest. The costs you're
| indirectly paying are lower due to the newer generation of
| market makers that have reduced transaction costs for you.
|
| > Is Black Rock buying all the real estate also good for
| (potential) retail investors like me?
|
| Investing in real estate for years is not related to market
| making stocks with a holding period of 5 minutes.
| bob29 wrote:
| I don't have a pension, or a 401k if that is what you are
| implying. I do have social security deducted from my
| paycheck. Is that money getting invested into the stock
| market on my behalf?
|
| Sorry I'm not in the elite income class, I'm not directly
| familiar with the nuances of all these financial
| companies, or what they do. I understand risk. I
| understand lending money to pursue a risky venture. I
| understand time-value of money. I don't understand
| higher-order financial engineering except as presented in
| pop culture references such as wolf of wallstreet which I
| initially referenced, or the big short. I understand many
| machinations of society aren't directly visible as a
| "product" to the "average joe" of society but their
| ultimate benefit to society can usually be explained in a
| way I can understand, such as insurance, loans,
| industrial manufacturing, and such. These financial
| companies, as well as lobbyists, seem to just be skilled
| at manipulating a system and converting it into money.
|
| Probably by your value system I am irrational, I don't
| chase money as an ends unto itself. I'm trying to
| understand Jane Street.
| quartesixte wrote:
| While you yourself might not be directly involved with
| this, a lot of what makes capitalism go round ultimately
| goes back to these large institutions swapping vast sums
| of money around and market makers help facilitate a lot
| of that action.
|
| Business loans, your savings account, your employer's (or
| contractor's if you're freelance) line of credit, the
| global currency system, the prices of commodities that
| get turned into the physical products that we consume,
| etc.
|
| Well, that's the idea anyways. Whether or not the snake
| has consumed it's own tail is a whole different
| discussion, but the stated value of stuff like this is to
| create efficient markets with correct price/price
| discovery aka make sure no one is paying too much or
| selling for too little.
| ReggieCommaRose wrote:
| You may not directly participate in capital markets but
| institutions around you that society relies on do. They
| do so to secure operating cash, loans, buy or sell
| insurance, etc. When people participate in capital
| markets they do so looking to make a profit or to
| purchase some utility, ideally these people have done
| some research about their trade before firing. Market
| makers compete for the right to charge you a fee (the
| spread) to make that transaction. You're paying a fee to
| sell them risk (the risk that you're correct with your
| opinion). Collectively this adds up to information
| exchange between all parties becoming less expensive:
| more participants on either side of any trade, smaller
| spreads, etc. Less friction. Options MMs are more or less
| directly buying and selling insurance.
| vecter wrote:
| > I don't understand higher-order financial engineering
| except as presented in pop culture references such as
| wolf of wallstreet
|
| The Wolf of Wall Street wasn't doing any sort of
| financial engineering in the real sense of the term. They
| were just committing fraud with pump and dump schemes.
| These guys had no actual quantitative or mathematical
| modeling abilities whatsoever that would be required for
| financial engineering and modeling. They were salesmen
| who swindled a lot of clueless people out of their money
| through illegal means.
| dchftcs wrote:
| >Are these "market makers" working behind the scenes to
| facilitate the operation of those retail facing companies
|
| Yes. Brokers like Fidelity have no idea how to price
| things, and even when they do, they don't know know how to
| manage the risk. Marker makers quote at the tightest prices
| they can offer and you trade against them, through your
| broker, on or off-exchange.
|
| Market makers are often much more efficient and automated
| than brokers, but have similar or lower margins as a
| business and take a lot more risk. There's a misguided
| anger directed to electronic market makers, but it's in
| fact brokers that've been ripping you off all along.
| googlryas wrote:
| With all due respect, what do you do for society?
| bob29 wrote:
| At my job? I take food ingredients and perform some manual
| manipulation to arrange them into enjoyable edible form
| (although the natural gas powered grill and the electric
| element powered heating elements, via cooking oil perform the
| bulk of the "work" in terms of watt-hours), and contribute to
| the maintenence of the facility and equipment that allows
| that to happen. Per shift (along with 1-4 coworkers) I think
| I am involved in preparaing late breakfast or lunch for
| approximately 150-200 people, saving them perhaps dozens of
| minutes from preparing the equivalent meal themselves. (don't
| worry, I dont think you owe me too much respect).
| 55555 wrote:
| bob29 wrote:
| dang wrote:
| Please stop trolling. I don't want to have to ban you.
|
| If you wouldn't mind reviewing
| https://news.ycombinator.com/newsguidelines.html and
| taking the intended spirit of the site more to heart,
| we'd be grateful.
| bob29 wrote:
| bob29 wrote:
| [deleted]
| [deleted]
| [deleted]
| cbau wrote:
| - There is a search cost of finding someone to trade with.
| Market makers streamline the process by always having a deal
| available. They might not offer you the best price you could
| get if you waited, but if you want to buy/sell a commodity
| _right now_ you now have the option to do so, and probably
| removing the search costs from society as a whole is
| economically efficient.
|
| - Special case of the above: They allow people who have want to
| trade huge amounts of a commodity a way to efficiently do so
| (no need to talk with multiple people; can do the trade all in
| one place).
|
| - By making trading more efficient, society can get a better
| idea of the "true" price of things. Extremely important because
| prices guide investment. For example, if you're a farmer, and
| you're thinking about what crops to plant or a research lab
| thinking about where to focus your research. Having an
| efficient market with accurate prices ensures the economy grows
| at max speed.
| keepquestioning wrote:
| My greatest regret is not getting into this firm
| silverlake wrote:
| I interviewed at Jane Street a long time ago. Halfway thru they
| gave me an office tour. All employees were packed together on
| one side of the floor, screens everywhere, no personal space at
| all. I couldn't see myself sitting there for 10 hrs/day. I
| limped thru the rest of the interview. Other firms and banks
| pay well too. The work is always boring though.
| wahnfrieden wrote:
| companies are big on culture fit because of wanting people
| happy with being forced to spend their waking hours in those
| conditions inflexibly
| md_ wrote:
| Fifteen years ago I had a job offer from Jane St sitting in my
| inbox, and I turned it down to work in tech.
|
| 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."
| david_allison wrote:
| In my experience, retention in quant finance is much higher
| than in tech (barring a few firms)
|
| People don't leave.
| wahnfrieden wrote:
| a high wage is a kind of golden handcuff
| david_allison wrote:
| I don't feel it's primarily about the money (but it
| helps). If it was about the money, it'd be the
| uncertainty of the bonus, rather than the wage itself.
| srfvtgb wrote:
| So you didn't get as rich as you could have and might not get
| to retire at 30, go live your life. A friend of mine and I both
| applied for a HFT firm out of university, he got in and I
| didn't, but based on how he described it over about 18 months
| working there, my greatest regret would have been taking that
| job, it sounded like a dismal place to work (with platinum
| handcuffs).
| keepquestioning wrote:
| Perhaps it would be worth it because he can retire 20 years
| earlier than you?
| CoolGuySteve wrote:
| There are a bunch of these firms. And when you pass the
| gauntlet, you realize that the people are smart but no smarter
| than at other firms. At some point, the strict hiring filter
| just produces noise.
|
| 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.
| Inconel wrote:
| Don't mean to hijack this thread but seeing as you have a
| background in the industry I was hoping you could answer a
| couple questions I had:
|
| 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.
| simtel20 wrote:
| Often a background or a degree from a prestigious
| university in the arts. Bringing culture and energy to the
| office that focuses on people and humanity instead of
| competitive math type geeks. Some firms like to feel like
| patrons of the arts giving writers actors poets etc a
| better job than waiting tables while exposing the firm to
| there influences.
| Inconel wrote:
| Very much appreciate the insight. I don't have good odds
| as a formerly homeless high school graduate, then again I
| wouldn't have seen myself in my current job 5 years ago,
| so will most likely give it a try anyway.
| oumua_don17 wrote:
| >> I don't have good odds as a formerly homeless high
| school graduate, then again I wouldn't have seen myself
| in my current job 5 years ago
|
| 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 :-)
| noitpmeder wrote:
| I wouldn't say most of these roles are anything different
| than you'd expect at most tech companies unless you are
| involved in the production trading/tech activity (trading-
| related ops, recruiting for traders/devs).
| Helpdesk/facilities usually isn't anything special.
| defrost wrote:
| You might have a focus-in ability to grind on details -
| that will play.
|
| 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.
| kenned3 wrote:
| I've spent time at a very large and well known hedge fund
| and I also have family at JS.
|
| 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.
| keepquestioning wrote:
| I'd be retired by now.
| vecter wrote:
| I don't know why you think that. Not everyone who makes in
| to these places comes out wildly rich. I know a smart guy
| from college who spent years as a team lead at a top HFT
| firm and wound up making less than most junior-level
| software engineers. You make what you kill, and not
| everyone is killing a lot.
| idontpost wrote:
| There's also the boat loads of money.
| mgaunard wrote:
| Quite a few inaccuracies in there. The ones that jump at me:
| - 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.
| SonOfLilit wrote:
| Downvoted because I feel this is nitpicking for nitpicking's
| sake, and it gets more things wrong than right.
|
| > 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.
| Gene_Parmesan wrote:
| Yes, it uses ML-style type inference, but that doesn't mean you
| are literally unable to annotate types, and the compiler is
| absolutely still doing type checking. I'm sure people like Jane
| Street annotate everything.
|
| 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.
| mgaunard wrote:
| That is not the idiomatic way to use OCaml, so I wouldn't
| assume they do that.
| LeonidasXIV wrote:
| Writing `mli` files is pretty much idiomatic or at the very
| least, not unusual.
| mgaunard wrote:
| Only for the public API boundary.
| SonOfLilit wrote:
| At least in similar languages like Haskell, what you do is
| let the compiler infer types and then press an IDE key
| combination to write out those inferred types as part of
| your code so you would get an error if you ever
| accidentally change the types.
| anfelor wrote:
| Some counter-points:
|
| 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.
| unixbane wrote:
| Why do all these companies with pretentious attitudes exist when
| the average* software still takes 30 seconds to show a paragraph
| of text? Ironically whenever these companies take the security
| test, they not only fall flat on their face, but are proven to
| not have the slightest clue how to do basic stuff like string
| escaping. I actually looked at the code for one of the top
| Haskell companies with the same attitude, and the story I just
| wrote is precisely what happened. Jane street sounds like a level
| 2 company like these Haskell companies and Cloudflare: They can
| escape strings, but only in places that have been famously
| exploited thousands of times, like SQL; they don't know how to
| actually know when the problem presents itself in a different
| unusual context, which they may have made themselves. It seems
| you need a million dollar employee income to reach level 3, and
| for level 4+ you simply need to be someone who is genuinely
| interested in the topic (as there is no monetary incentive) and
| have spent 10 years reaching it. Also, this applies to all
| aspects of tech, not just software security.
|
| * not even average, this describes almost all software made in
| the last 20 years.
| paulpauper wrote:
| 1. It's realllyyyy hard to get hired. So many stories are along
| the lines of "I applied...blah blah... didn't get in"
|
| 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.
| [deleted]
| spaceman_2020 wrote:
| I increased my crypto account 50x since the start of Covid. But
| I'm not delusional enough to think there was any skill involved
| in that. I was simply the beneficiary of an unprecedented macro
| environment.
|
| 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.
| quickthrower2 wrote:
| So you are doubling your money each year? Do you have a forward
| strategy to keep that up?
|
| 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.
| paulpauper wrote:
| It depends if you are getting new money or not. For a lump
| sum investment, depending on market cycles it's possible to
| structure the trade to optimize returns. If you assume that
| bear markets are every 6 years , there are certain simple
| integrals for computing this in which you input a certain
| starting capital and then a certain risk -free rate and then
| the capital is split between two assets like cash and stocks.
| When the bear market is triggered, you switch from cash to
| stock. [0]
|
| 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.
|
| [0]
|
| 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.
| tsimionescu wrote:
| There are a lot of assumptions in this comment, and solid
| math based on faulty assumptions is not going to be a good
| long-term strategy.
|
| 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.
| quickthrower2 wrote:
| I think COVID is enough to disprove this idea. That was the
| bear market that turned bull ... for some sectors but not
| others. I don't think the cycles are predictable enough to
| make more profit (on average) than a buy the index
| strategy.
|
| 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.
| nly wrote:
| One of the funds you list is leveraged 3x. If the market
| drops 33% you're wiped out, get liquidated, and can never
| recover.
|
| 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.
| paulpauper wrote:
| that would require a 33% decline in a single day for the
| Nasdaq, which has never happened in the history of the
| stock market.
| riverlong wrote:
| > I increased my account by 5x since the lows of covid to
| present with simple large cap tech and etf strategies (...)
|
| 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.
| dang wrote:
| Please don't be a jerk in HN comments, regardless of how
| little someone else knows or you feel they do.
|
| You can make your substantive points without that.
|
| https://news.ycombinator.com/newsguidelines.html
| hahnchen wrote:
| Sooooo hard to get hired here. I'm convinced it's impossible
| without a referral or something
| LewisVerstappen wrote:
| Are you talking about a trading role or an engineering role?
| hahnchen wrote:
| engineering
| vecter wrote:
| They'd be silly to not interview someone who applied with
| strong quantitative background. Once you make the interview,
| it's all up to you. No amount of referrals will make up for a
| poor interview.
| gaws wrote:
| > Sooooo hard to get hired here.
|
| Did you apply and get rejected?
| kenned3 wrote:
| As I posted above.. I have family who work there. They were not
| a "referral or something".
|
| 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.
| david_allison wrote:
| No it's not, but it is impossible with that attitude.
| dagw wrote:
| I know a couple of people working at hedge funds. Both on them
| just applied to a job posting and got hired without knowing
| anyone.
| jwilber wrote:
| The interviews are definitely hard, but I can confirm the
| recruiters will reach out to you directly if they find your
| profile interesting.
| hahnchen wrote:
| Sounds reasonable. In the past I applied for an internship
| and got resume rejected for swe, they seem rather elusive...
| pedrocr wrote:
| There's one thing that always baffles me about this kind of
| market work. Let's for the sake of argument assume that HFT and
| other sophisticated market making activities are crucial for
| price discovery and other great social benefits. Then why does
| this amazingly important social good get mostly turned off over
| 80% of the time[1]? Even as a retail buy-and-hold investor in
| boring ETFs not being able to trade outside normal office hours
| is an inconvenience. Surely the world economy has even more uses
| for trading at all hours than me?
|
| [1] https://www.nyse.com/markets/hours-calendars
| NavinF wrote:
| Legacy reasons.
|
| 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.
| c-fe wrote:
| Without arguing in favor or against the usefulness of HFT, the
| reason trading hours are limited is to increase liquidity
| during the specific hours that trading takes place. Liquidity
| is important for various reasons, in particular it helps reduce
| spread and thus there are better prices. Trading during other
| hours is possible, either during pre-market or after-hours, and
| there are even exchanges that enable trading on weekends, for
| example https://www.ls-tc.de/de/faq . During weekend trading,
| the spread is significantly higher.
| xitrium wrote:
| I will say up front that I don't think the social good is worth
| what we are collectively paying for it, but I do think the
| market hours are a reasonable device. This is basically because
| there are humans involved and they need to sleep (Matt Levine
| has written about this).
|
| 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.
| [deleted]
| matred wrote:
| The majority of the market, by flow, is open 23H a day during
| the week, and opens Sunday evening.
| [deleted]
| flerovium wrote:
| This is wrong.
|
| 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.
| Orochikaku wrote:
| Signals and Threads[0] is a podcast featuring interesting
| conversations from engineers at Jane Street
|
| [0] https://signalsandthreads.com/
| cosmic_quanta wrote:
| Thank you for the suggestion. Looks like it's doesn't get
| published often though
| kyawzazaw wrote:
| Yaron Minksy is probably too busy.
|
| But the tech blog is really good too.
|
| https://blog.janestreet.com/
| benrow wrote:
| Very interesting podcast - crazy stuff relating to the very
| edge of possibility in low latency computing.
| bibabaloo wrote:
| From the article:
|
| > 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?
| scajanus wrote:
| Edit: if you remove the second 'at' it makes sense.
|
| 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.
| josu wrote:
| No, the original statement is correct. Page 3 of the linked
| paper has a diagram.
|
| https://www.janestreet.com/wp-
| content/themes/janestreet/pdf/...
| jackblemming wrote:
| This and getting people to click more ads. What a great use of
| innovation and bright minds.
| jeffreyrogers wrote:
| Most of the hard problems in the world aren't technical and the
| ones that are have lots of people working on them.
| nickkell wrote:
| It's trickle-down programming. They're inventing the next big
| database technology or whatever by doing busy work and that
| will eventually enable somebody else to produce something of
| actual value to mankind.
| Hammershaft wrote:
| I agree, genuinely depressing to think of what is lost from
| talent being allocated this way.
| null0pointer wrote:
| Most of this article is pretty interesting and unusually
| insightful about quant firms. But I find this sentence to be
| utterly disgusting.
|
| > 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.
| faangiq wrote:
| For all the mysticism surrounding them, what they do is very
| simple. They just do it well.
| adave wrote:
| This reads like a very rosy picture of what these firms actually
| do. Surely they are secretive and tight lipped about all the
| money being made in low risk trades.
|
| 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.
| hawk_ wrote:
| > to make money over retail trades
|
| You can call them vampire squid from hell but they don't
| exactly take money from retail, they tighten spreads for them
| if anything.
| md_ wrote:
| Wouldn't electronic front running take money from regular
| folks? Perhaps not from retail trades, but from mutual/index
| funds, pension funds, etc.
| thw09j9m wrote:
| Front running is illegal. However, making a better price
| prediction than the rest of the market and trading on it is
| not the same thing as front running.
|
| [1] https://www.investopedia.com/terms/f/frontrunning.asp#:
| ~:tex....
| md_ wrote:
| Hmm, I don't think that answers the question. See
| https://www.nyujlb.org/single-post/2017/11/27/high-
| frequency... (which is EU-specific). I think
| https://www.cnbc.com/2014/04/03/high-frequency-traders-
| cant-... is suggesting that this is similarly legal in
| the US.
|
| Again, not an expert.
| thw09j9m wrote:
| Generally, illegal trading resolves around the idea of
| trading on non-public information. And front running
| falls under that category (access to order data that
| other participants do not).
|
| 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.
| md_ wrote:
| Right. I think we're saying the same thing?
| thw09j9m wrote:
| I think I'm missing the connection between how HFT's
| trade and how it takes money away from regular people.
| md_ wrote:
| This is a pretty widely discussed question, and while I
| think the empirical evidence is so far unclear, there are
| some obvious theoretical models where costs for large
| institutional investors (like pension funds) go up. E.g.
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=22385
| 16.
|
| Pinging
| (https://www.finra.org/investors/insights/getting-speed-
| high-...) would be an example such strategy.
| carnitine wrote:
| Market makers and retail traders have aligned incentives. Stop
| scaremongering.
| thw09j9m wrote:
| > There are known loopholes that market makers get to exploit
| since they help keep the casino going.
|
| Like what? I work at an HFT and I'd love to deliver a new
| strategy to my manager.
| pigtailgirl wrote:
| -- only managed to make it half way through the article so
| apologies if this was covered later - re: the intern game - if
| the game is confidence in the probability of your answers -
| couldn't you deliberately get the answers wrong and just bet low
| confidence in your answers? - this seems like a really stupid
| comment on my part so I presume I'm missing something important
| --
| dannyw wrote:
| No context around Jane Street, but I'd expect the goal to still
| be maximising your return / value. The people who are better at
| assessing probability and risk will have a higher value in
| aggregate.
|
| Filter out those who made bets too big to avoid outliers.
| Krastan wrote:
| You only get more tokens when you're right. So to "win" you
| have to bet high when you know you'll be right, so you get the
| most tokens, and bet low when you're not sure so you don't lose
| too many. Getting it wrong only loses you tokens.
| _lpa_ wrote:
| Presumably the goal is to have a lot of chips at the end (more
| than you started with?). I would assume if you bet 10 chips,
| you get 10 for being right, and zero for not. So betting 0
| chips all the time probably won't get you the job!
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