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Understanding Jane Street
51–60 of 392 posts
Re: Understanding Jane Street
#52Something 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…
Then the article would have been about whoever beat them.
Re: Understanding Jane Street
#53Re: Understanding Jane Street
#54Something 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…
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?
Re: Understanding Jane Street
#55Earlier quoted context omitted.
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?
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.
Re: Understanding Jane Street
#56Earlier quoted context omitted.
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.
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.
Re: Understanding Jane Street
#571. 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 h…
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.
Re: Understanding Jane Street
#58My 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…
I'd be retired by now.
Re: Understanding Jane Street
#59Earlier quoted context omitted.
> 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…
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.
Re: Understanding Jane Street
#60I 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.