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Understanding Jane Street

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Re: Understanding Jane Street

#161

Post by benreesman »

cycomanic wrote: post #138
benreesman wrote: post #96

Earlier quoted context omitted.

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 a…

> 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?

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.

Re: Understanding Jane Street

#162

Post by badpun »

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.

Re: Understanding Jane Street

#163

Post by mellavora »

uniqueuid wrote: post #82
j7ake wrote: post #77

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 scie…

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 Hawki…

> 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 Erdős. Always jumping into new areas of mathematics and solving problems at the cutting edge.

Or, to get to the current subject, Taleb using his background as a trader to jump to a career in academia, where many consider(ed) his research cutting edge.

Re: Understanding Jane Street

#164

Post by carnitine »

rgifford wrote: post #97
bitanarch wrote: post #72

Earlier quoted context omitted.

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.

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. The…

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.

Re: Understanding Jane Street

#165

Post by benreesman »

FabHK wrote: post #157
jaycroft wrote: post #127

Earlier quoted context omitted.

But it doesn't have to happen at the exact same time? Limit orders exist, no?

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?)

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.

Re: Understanding Jane Street

#166

Post by spoonjim »

stackbutterflow wrote: post #139
spoonjim wrote: post #81

Earlier quoted context omitted.

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.

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 the…

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.

Re: Understanding Jane Street

#167

Post by noitpmeder »

Inconel wrote: post #49
CoolGuySteve wrote: post #15

Earlier quoted context omitted.

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 pr…

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 t…

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.

Re: Understanding Jane Street

#168

Post by ivalm »

benreesman wrote: post #96
spoonjim wrote: post #87

Earlier quoted context omitted.

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.

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 a…

> 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.

Re: Understanding Jane Street

#169

Post by pinerd3 »

mellavora wrote: post #163
uniqueuid wrote: post #82

Earlier quoted context omitted.

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 Hawki…

> 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 Erdős. Always jumping into new areas of mathematics and solving problems at the cutting edge. Or, to get to the current subject, Taleb using his background as a trader to jump to a career in academia, where many consider(ed) his r…

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 Erdős was working.

Re: Understanding Jane Street

#170

Post by benreesman »

badpun wrote: post #162

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.

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.
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