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Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

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Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#41

Post by lend000 »

Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

From a technical challenge standpoint, trading is extremely difficult. But it provides high upside which only starting a business can exceed. However, starting a business has all the other uncertainty (regulatory, accounting, insurance, licensing, taxes, customers, branding, sales, product-market-fit), making it far more psychologically challenging overall. Startup founders need to learn and juggle a lot of things instead of hyper-fixating on markets. Basically, if you know you are sufficiently intelligent and talented as an engineer, your expected return is likely much higher in trading (especially via a big quant firm), with much lower risk.

If we want more talented traders to become founders building economic value (which we should all agree on), we need to make it less onerous to start a business.

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#42

Post by thrance »

Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

I'd argue it provides negative value even. The goal of these people is to extract money from the markets, without actually producing anything. In biology, we'd call that parasitism.

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#43

Post by jfim »

madars wrote: post #31
Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

Why would it be wasted? I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that. The principal reason why I can buy and sell equities at very small spreads any day of the year is similar: traders are competing…

> I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that.

In practice, if the availability of the apples you're eating is dependent on finance people, they're commodity grade, not specialty varieties.

I don't eat apples, but I'd rather have a good heirloom tomato from the farmer's market than the commodity grade stuff that's at the grocery store.

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#44

Post by thrance »

madars wrote: post #31
Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

Why would it be wasted? I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that. The principal reason why I can buy and sell equities at very small spreads any day of the year is similar: traders are competing…

Ok, but what do high frequency trading bots possibly do to help me eat apples in winter (a deeply unecological mode of consumption, btw)?

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#45

Post by twoodfin »

godelski wrote: post #39
twoodfin wrote: post #13

Earlier quoted context omitted.

If it didn’t provide value, nobody would pay for it. The alternative to highly technical, agile quantitative trading is fat middle men, wide spreads, and capital sitting in 8%* stupider places than it would otherwise. That’s a pretty big deal even if the observable effects are extremely diffuse. * Made up number, but if we woke up on Monday with nothing but the tech we used to trade in 1984 it would probably hit much…

Lots of things provide no value that people pay for. The inverse is true too: lots of things provide value that no one pays for. I find it shocking that anyone that programs would think this way considering how widespread and common open source tooling is. I don't know how you can get through your day without using OSS or even free websites like stack overflow.

Of course the inverse is true, and you don’t have to stick to software. Raising children produces value despite no one exchanging currency.

But generally nobody pays quants to lose money. They expect value over the other opportunities they have to use that same money.

Is this really controversial?

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#46

Post by Workaccount2 »

madars wrote: post #31
Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

Why would it be wasted? I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that. The principal reason why I can buy and sell equities at very small spreads any day of the year is similar: traders are competing…

There is an extreme case of diminishing returns at play here, and unfortunately the amount of money that flows through these markets is so incredible that it becomes worth it (more than worth it) to commission the top minds of society to push the limit as close to 1 as absolutely possible.

Derivatives have great value to industry. Derivatives that require the fuel of 15 math Phds to lock in fractions of a percentage pricing inefficiencies so their firm can pocket the difference do not have much value at all.

It's like employing Harvard Med surgeons to remove gold dust from gold market sidewalks, and calling it "gold market efficiency".

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#47

Post by memonkey »

keyle wrote: post #9
Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

I take the silver lining. Smart people getting rich is better than dumb people getting rich. Hopefully some day they'll do something good with that money.

I would prefer good people get rich and bad people don't.

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#48

Post by thrance »

LeroyRaz wrote: post #10
Workaccount2 wrote: post #4

I will eternally find it sad how much talent is wasted on trading. So much money, so much intelligence, so much time and effort, all the provide almost no tangible value to society.

I agree, how dull and uninspired. I'm very much with Paul Graham, who believes in the creation of wealth (as opposed to the extraction of money).

Did he really advocate for that? Then why did he support the GOP, a very-much pro-financialization party?

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#49

Post by twoodfin »

godelski wrote: post #40
twoodfin wrote: post #20

Earlier quoted context omitted.

I am pretty sure anyone who sticks around Jane Street for a while is getting “rich” by any popularly accepted measure.

I'm pretty sure the parent is implying that there is quite a disproportionate distribution.

Sorry, implying what? That Jane Street quants aren’t getting rich enough?

Re: Finding Signal in the Noise: Machine Learning and the Markets (Jane Street)

#50

Post by mlyle »

dietr1ch wrote: post #35
madars wrote: post #31

Earlier quoted context omitted.

Why would it be wasted? I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that. The principal reason why I can buy and sell equities at very small spreads any day of the year is similar: traders are competing…

> I like apples and I like being able to buy them any day of year, even out of season. The only reason I can do so is because there is an entire industry of people who manage the inventory, distribution, try to predict supply and demand, and take on a risk doing that. This has been the case for well over 200 years and is not done by the same kind of people that modern finance/fintech employs. Imagine the world 150 ye…

I do think finance is important in making markets more efficient, predictable, and liquid. In turn, this improves the amount of capital available and also improves the efficiency and availability of international trade.

It's also a sophisticated "export" product itself.

However, I think there's a point where, absent sufficient regulation, it overshoots and most of the effort goes to squeezing nickels out of everyone else in underhanded ways. I feel like we could get 90-95% of the benefits with a finance industry that's half the current size, and also avoid a whole lot of indirect costs that come with an oversized finance industry.

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