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Understanding Jane Street

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Re: Understanding Jane Street

#341

Post by rgifford »

noitpmeder wrote: post #160
rgifford wrote: post #97

Earlier quoted context omitted.

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…

{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.

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.

Re: Understanding Jane Street

#342

Post by FabHK »

JackFr wrote: post #336
mooreds wrote: post #314

Earlier quoted context omitted.

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.

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/staff... The CR blog was not the same after she passed away.

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...)

Re: Understanding Jane Street

#343

Post by rgifford »

carnitine wrote: post #164
rgifford wrote: post #97

Earlier quoted context omitted.

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.

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.

Re: Understanding Jane Street

#344

Post by robocat »

benreesman wrote: post #161
cycomanic wrote: post #138

Earlier quoted context omitted.

> 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…

> 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.

Re: Understanding Jane Street

#345

Post by robertlagrant »

data_maan wrote: post #101
j7ake wrote: post #89

Earlier quoted context omitted.

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…

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.

What good has your comment done to a person living in Madagascar?

Re: Understanding Jane Street

#346

Post by [deleted] »

bob29 wrote: post #130
dang wrote: post #62

Earlier quoted context omitted.

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.

Quoted post unavailable.

[deleted]

Re: Understanding Jane Street

#347

Post by robertlagrant »

data_maan wrote: post #105
Donckele wrote: post #99

Earlier quoted context omitted.

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 predic…

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 ;)

> I'm still waiting to see them bragging about having top proctologists in their team ;)

They tend to be on the regulatory side.

Re: Understanding Jane Street

#348

Post by notahacker »

matred wrote: post #326
notahacker wrote: post #243

Earlier quoted context omitted.

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 firs…

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 ga…

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)

Re: Understanding Jane Street

#349

Post by vecter »

rgifford wrote: post #338
vecter wrote: post #230

Earlier quoted context omitted.

HFT does nothing illegal. If you’re going to make strong claims like that, it would be good to provide some evidence.

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 the…

> 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

Re: Understanding Jane Street

#350

Post by bmitc »

benreesman wrote: post #60

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…

> 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.

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