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Understanding Jane Street

thediff.co

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Re: Understanding Jane Street

#41

Post by hchz »

smabie wrote: post #25
hackerlight wrote: post #23

Earlier quoted context omitted.

"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…

Flow from other HFT / market makers is often very toxic. They are playing the exact the game as you.

Right, sure, and that game is not lifting the market, generally speaking.

Re: Understanding Jane Street

#42

Post by Scarbutt »

orange3xchicken wrote: post #39
julianeon wrote: post #32

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…

At least on the quant side, I think the typical sentiment is that most researchers aren't interested in ops / developing infrastructure / curating datasets.

How does that answers their question?

Re: Understanding Jane Street

#43

Post by ReggieCommaRose »

julianeon wrote: post #32

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…

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.

Re: Understanding Jane Street

#44

Post by bob29 »

hackerlight wrote: post #34
bob29 wrote: post #28

Earlier quoted context omitted.

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…

> 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?…

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.

Re: Understanding Jane Street

#45

Post by dchftcs »

bob29 wrote: post #28
orange3xchicken wrote: post #7

Earlier quoted context omitted.

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 ef…

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…

>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.

Re: Understanding Jane Street

#46

Post by hackerlight »

julianeon wrote: post #32

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…

> 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.

Re: Understanding Jane Street

#48

Post by bob29 »

55555 wrote: post #37
bob29 wrote: post #17

Earlier quoted context omitted.

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…

Quoted post unavailable.

No post body was provided.

Re: Understanding Jane Street

#49

Post by Inconel »

CoolGuySteve wrote: post #15
keepquestioning wrote: post #4

My greatest regret is not getting into this firm

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 the firm if you join in a support function?

Appreciate any insight you may have.

Re: Understanding Jane Street

#50

Post by zellix »

dcolkitt wrote: post #31
mupuff1234 wrote: post #21

What tax do these type of companies pay? I'm gonna guess they aren't paying the "retail" short term capital gain tax.

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)

Pretty much, except for Susquehanna. See https://www.propublica.org/article/jeff-yass-susquehanna-tik... for details.
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