29 ms·

Understanding Jane Street

671 points by mxtihvb 4y ago

smabie 4y ago
Generally good article that delves into how a market maker functions. Couple points: Re EA: quoting my boss, EA isn't really a dominant thing in the market maker space, it's pretty much only espoused by a couple high profile individuals (mainly, SBF). Re strategy: point about how there's little strategy involved in being a market maker is off-base. Everything is ultimately strategy: do I continue to pour resources into a strategy that is losing money in the hopes of eventually seeing pnl? What markets should I focus on? What is the best use of time for each employee that maximizes pnl/head? etc etc One thing that I thought article got right is that most work involved in market making is about avoiding trades, not making them. Capturing the bid ask spread is conceptually easy. The hard part is avoiding trading with toxic counterparties. Part about put options is especially apt. Market making during a crash / recession (like right now) is especially difficult because all the non-toxic counterparties have stopped trading as much (people like to trade a lot more during a bull market than a bear one). By setting up a structure such that you profit during a crash (either by buying puts, leaning net short, or through some other method), you introduce an uncorrelated return stream that can really help.
- quickthrower2 4y ago
  Does a market maker consider another market maker “toxic” by your definition? I assume by “toxic” you mean too smart? Or do you mean they cheat?
  - ReggieCommaRose 4y ago
    Usually too smart, on rare occasion they cheat. MMs inherently deal with information assymetry and adverse selection because they generally stand ready providing liquidity with quotes out in the world (though obviously width matters). Toxic counterparties are parties who decide to trade against you who have a better idea about “true” price than you. They might make or they might not, depends if the degree in which they’re right overcomes the spread they crossed. Other MMs can be (and often are) toxic.
    - viet1 4y ago
      or doing latency arbitrage
      - matred 4y ago
        that falls into the category of knowing the “true” price better than you do
  - hackerlight 4y ago
    "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 that order and push the price against you.
    - smabie 4y ago
      Flow from other HFT / market makers is often very toxic. They are playing the exact the game as you.
      - hchz 4y ago
        Right, sure, and that game is not lifting the market, generally speaking.
        smabie 4y ago
        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.
        twic 4y ago
        Other market makers are often moving away from something they've seen but you haven't yet. When whatever that is hits you, the fills you got from the other market maker will look really bad.
        matred 4y ago
        Sure, but those short-term active strategies have little impact next to what big paper will lift in major macro markets.
- paulpauper 4y ago
  ). By setting up a structure such that you profit during a crash (either by selling puts, leaning net short, or through some other method), you introduce an uncorrelated return stream that can really help isn't selling puts directional? One strategy could be something like trying to find a way to bet on volatility but without a negative carry or at least as small as possible...this is hard to do. Taleb's universa fund tries to do this.
  - deleted 4y ago
    [deleted]
  - smabie 4y ago
    Sorry I meant to say buying puts (and have edited comment). Buying puts is directional and has negative carry. That's often fine because when your puts aren't making money your market making strategies should be doing well and vice versa
- jefftk 4y ago
  > EA isn't really a dominant thing in the market maker space The article doesn't say it's dominant, it says "There is a weirdly high overlap between quant finance and Effective Altruism in general, and between Jane Street and EA in particular (it is emphatically not 100%)" I know quite a few EAs who work or worked at Jane Street, much lower profile than SBF. What the article misses is that a lot of EAs specifically went into finance because if you're looking to earn money to donate it's one of the places you can earn the most, and not because of "where they advertise jobs" or "overlap in outlooks".
bob29 4y ago
- bthrn 4y ago
  Market making is a very important role.
- orange3xchicken 4y ago
  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 efficiently run market. Whether or not automated market makers contribute to this could be up for debate, I guess.
  - bob29 4y ago
    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 told to cheer for those faciliting the ever-increasing wealth disparity of society.
    - hackerlight 4y ago
      > 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? Investing in real estate for years is not related to market making stocks with a holding period of 5 minutes.
keepquestioning 4y ago
My greatest regret is not getting into this firm
- CoolGuySteve 4y ago
  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 process hazing ritual that sets the allure, there's not much else to it.
  - idontpost 4y ago
    There's also the boat loads of money.
  - Inconel 4y ago
    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.
    - simtel20 4y ago
      Often a background or a degree from a prestigious university in the arts. Bringing culture and energy to the office that focuses on people and humanity instead of competitive math type geeks. Some firms like to feel like patrons of the arts giving writers actors poets etc a better job than waiting tables while exposing the firm to there influences.
      - 4y ago
paulpauper 4y ago
1. 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 happens at the end of Jane Street internships: interns get a stack of 100 poker chips and spend half a day getting asked brainteasers and then betting on their confidence in the answers. Some of these questions might be pure math and probability questions, some might be more abstract bets on making a market in some outcome, and apparently one of the questions is a tough probability question where part of the prompt is to bet on how long it will take to get the answer.1 I dunno why brain teasers are so important. I increased my account by 5x since the lows of covid to present with simple large cap tech and etf strategies (tesla ,tqqq, tecl, amazon, and others ). I don't need to mentally visualize 3d shapes intersecting 2-d planes or count colored vertices of hypercubes to make money or develop good strategies. Just some basic calculations and some other analysis..maybe advanced high school level. It's like if you want to find good traders, look for people with good track records. If I were going to start a fund, I would do away with the puzzles. Instead what I would do is look for people who seem to have good track records on reddit or elsewhere and some decent risk management, like on wallstreetbets. There are thousands of users there and then I would try to find the best ones and try to quiz them on risk management to see if they are relying on luck or have a system. Recruiting from reddit or twitter is harder than linkedin, but I think the quality is better because you are seeing actual traders in their element. instead of hoping that puzzle skill will lead to trading skill, you just pick people who are already good. Continued: The other mitigation strategy is: just buy some puts. Markets usually don't crash upwards, but they do have a habit of crashing downwards. And for a market-maker, a crash is a uniquely interesting situation: volume is high, spreads rocket up because people are afraid to trade or don't have the liquidity, so an active participant can make a staggering amount of money. (I liked this Reddit AMA: "Yeah, 08-09 was insane. I've heard stories. No one knew what the fuck was going on and everyone was on edge. Then it all turned out fine and everyone got PAID.") Puts bleed out a lot. Even during bear markets they lose money if the path dependency is unfavorable. The covid crash would have been perfect, but the 2022 bear market has been much more gradual, so puts would have done more poorly. Yes, the 'crashing down' aspect is captured by the skew or smile. That's why a 20% ITM put will have a much higher IV than a 20% OTM call or be much higher than predicted by the volatility of the underlying. In some cases it will be massive...like a 38% IV compared to 11% for the underlying. So many people have tried to make put strategies work, and I have yet to see anyone do it, but if someone actually could I imagine they would not tell.
mupuff1234 4y ago
What tax do these type of companies pay? I'm gonna guess they aren't paying the "retail" short term capital gain tax.
- hajile 4y ago
  These kinds of firms are one big reason we need a sales tax on stock trades. Stable, long-term investments are much better for the economy.
- missedthecue 4y ago
  -
  - JohnJamesRambo 4y ago
    Why should that be less?
- dcolkitt 4y ago
  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)
  - zellix 4y ago
    Pretty much, except for Susquehanna. See https://www.propublica.org/article/jeff-yass-susquehanna-tiktok-tax-avoidance https://www.propublica.org/article/jeff-yass-susquehanna-tik... for details.
    - ocfnash 4y ago
      Assuming it is accurate, the final sentence in this article is especially notable.
- nly 4y ago
  They'll have their cost centers in places like NY and London incorporated separately, making consistent losses, and then the arm doing actual trading will be in Bermuda or somewhere with 0% business tax.
julianeon 4y ago
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 a commodity business.
- orange3xchicken 4y ago
  At least on the quant side, I think the typical sentiment is that most researchers aren't interested in ops / developing infrastructure / curating datasets.
  - Scarbutt 4y ago
    How does that answers their question?
    - simtel20 4y ago
      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.
- ReggieCommaRose 4y ago
  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.
hahnchen 4y ago
Sooooo hard to get hired here. I’m convinced it’s impossible without a referral or something
- jwilber 4y ago
  The interviews are definitely hard, but I can confirm the recruiters will reach out to you directly if they find your profile interesting.
  - hahnchen 4y ago
    Sounds reasonable. In the past I applied for an internship and got resume rejected for swe, they seem rather elusive…
- LewisVerstappen 4y ago
  Are you talking about a trading role or an engineering role?
  - hahnchen 4y ago
    engineering
- vecter 4y ago
  They'd be silly to not interview someone who applied with strong quantitative background. Once you make the interview, it's all up to you. No amount of referrals will make up for a poor interview.
- david_allison 4y ago
  No it's not, but it is impossible with that attitude.
- kenned3 4y ago
  As I posted above.. I have family who work there. They were not a "referral or something". I also worked at a hedge fund myself, and i was not a "referral" either. They post positions online, apply. if you have the skills they are looking for you can get in.
joshsyn 4y ago
benreesman 4y ago
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 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 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-Transforming/dp/0691211388 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.
- melony 4y ago
  Since this is Hacker News, let's not beat about the bush. Here's a channel that actually go through derivatives pricing without hiding the math: https://youtube.com/c/QuantPy/videos https://youtube.com/c/QuantPy/videos
  - benreesman 4y ago
    Thank you kindly for what looks like a great resource! I've been trying to put myself through YouTube night school on some of this stuff, and MIT OCW has great resources as well at significantly less cost than going to MIT ;) This is a pretty reasonable jumping off point for their corpus of financial engineering stuff: https://www.youtube.com/watch?v=HdHlfiOAJyE https://www.youtube.com/watch?v=HdHlfiOAJyE. I'm fortunate enough to work with a person who actually understands derivatives trades with some sophistication, but that's a happy accident and the more people have access to good online resources the better! Edit: I forgot to mention this book (https://www.amazon.com/Algorithmic-Trading-DMA-introduction-strategies/dp/0956399207 https://www.amazon.com/Algorithmic-Trading-DMA-introduction-...) in the spirit of something more technical than the general-audience one I linked above. I have some nitpicks with it as well, but I've gotten value out of it.
faangiq 4y ago
For all the mysticism surrounding them, what they do is very simple. They just do it well.
j7ake 4y ago
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 scientifically, but you’ll be far ahead financially.
- benreesman 4y ago
  Not to mention that tightening spreads, deepening books, and equalizing prices across regulatory/financial/geographical regimes is a pretty serious social good in its own right. I understand that (as the article mentions) these folks clean up when the wheels have already come off anyways, but day-in-day-out, the spread on AAPL is one tick ($0.01) nowadays, rather than the 1/8ths that you'd get quoted by some loud guy from Jersey 30 years ago. Citations on this stuff are hard to come by, but it does seem at least directionally true that these advanced actors are making less money over time even as the problem becomes harder. If that's true, it's money not going into the pocket of a middle-man somewhere. Multiply that by everyone's retirement account and we're talking real money.
  - spoonjim 4y ago
    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.
    - benreesman 4y ago
      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 account, across everyone with a retirement account it adds up. I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two. There are exceptions: 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.
bibabaloo 4y ago
From the article: > One example of this is NAV trading (Jane Street has a paper here), where an investor wants to place a large trade in an ETF and agrees to buy it at some future point at whatever its net asset value is, less some small fee. Should this say "agrees to buy it at some future point at whatever its net asset value is *NOW*"? Otherwise, I'm confused, why wouldn't the investor just buy it later?
- scajanus 4y ago
  Edit: if you remove the second 'at' it makes sense. I think they mean that the buyer will agree to pay $5000 now for say 10 shares (close to current valuation), and get it in a week regardless if they will be worth $0, $5000 or $100000 at that point. They would prefer to buy it now, but can't, and thus are willing to pay a fee to make it happen. However, the motivation (and pricing) is different from futures trading: here the buyer would prefer to buy the asset immediately, but because of market inefficiencies or unavailability it's not possible. So some dealer figures he can make that happen in a week, takes a small fee, and agrees to the trade. In the meantime, the dealer might want to buy something that correlates with the value of the actual asset to cover his bet -- e.g. they might be able to buy most of the stocks in the ETF in roughly the same amounts, and just accept the remaining risk. There is however a chance that they will not be able to complete the transaction.
  - josu 4y ago
    No, the original statement is correct. Page 3 of the linked paper has a diagram. https://www.janestreet.com/wp-content/themes/janestreet/pdf/Important_Considerations_for_NAV_Based_ETF_Trading.pdf https://www.janestreet.com/wp-content/themes/janestreet/pdf/...
jackblemming 4y ago
This and getting people to click more ads. What a great use of innovation and bright minds.
- Hammershaft 4y ago
  I agree, genuinely depressing to think of what is lost from talent being allocated this way.
  - smabie 4y ago
    Ignoring the fact that liquidity provisioning is a very valuable service (if it wasn't, people wouldn't pay for it), what are you doing that is so world changing?
- jeffreyrogers 4y ago
  Most of the hard problems in the world aren't technical and the ones that are have lots of people working on them.
- nickkell 4y ago
  It's trickle-down programming. They're inventing the next big database technology or whatever by doing busy work and that will eventually enable somebody else to produce something of actual value to mankind.
pigtailgirl 4y ago
-- only managed to make it half way through the article so apologies if this was covered later - re: the intern game - if the game is confidence in the probability of your answers - couldn't you deliberately get the answers wrong and just bet low confidence in your answers? - this seems like a really stupid comment on my part so I presume I'm missing something important --
- dannyw 4y ago
  No context around Jane Street, but I'd expect the goal to still be maximising your return / value. The people who are better at assessing probability and risk will have a higher value in aggregate. Filter out those who made bets too big to avoid outliers.
- _lpa_ 4y ago
  Presumably the goal is to have a lot of chips at the end (more than you started with?). I would assume if you bet 10 chips, you get 10 for being right, and zero for not. So betting 0 chips all the time probably won't get you the job!
- Krastan 4y ago
  You only get more tokens when you're right. So to "win" you have to bet high when you know you'll be right, so you get the most tokens, and bet low when you're not sure so you don't lose too many. Getting it wrong only loses you tokens.
mgaunard 4y ago
Quite a few inaccuracies in there. The ones that jump at me: - OCaml does type inference, so you don't actually declare the types and have the compiler check them, as stated in the article. - Investors are not market-makers, the two words actually refer to the two types of opposed participants in the market. - OCaml is the language used for research, but they actually have a lot of developers working on the compiler and on libraries for OCaml which are themselves implemented in C or C++. - Jane Street is hiring massively and not nearly as exclusive as advertised here, though they do indeed pay slightly above the average. Most likely they had a few good years and are investing the cash they made into hiring expensive staff.
- Gene_Parmesan 4y ago
  Yes, it uses ML-style type inference, but that doesn't mean you are literally unable to annotate types, and the compiler is absolutely still doing type checking. I'm sure people like Jane Street annotate everything. In addition, perhaps a small point relative to the first, but in Ocaml, the arithmetic operators perform no type inference; there's a separate operator for float-addition versus int-addition, and so on. This somewhat limits your exposure to potential automatic type conversions.
  - mgaunard 4y ago
    That is not the idiomatic way to use OCaml, so I wouldn't assume they do that.
    - LeonidasXIV 4y ago
      Writing `mli` files is pretty much idiomatic or at the very least, not unusual.
      - mgaunard 4y ago
        Only for the public API boundary.
    - SonOfLilit 4y ago
SilverBirch 4y ago
>the winners get a job from which people routinely retire rich in their 30s, and the losers... don't Honestly, I find this ridiculous. Firstly, Yes, working at Jane Street is a well paying job and you'll do well out of it. No. People aren't routinely retiring in their 30s. I don't understand where this absurd idea comes from. Look at all the rich people in the world, look at how old they are, and ask, are they retired? No! People who are driven and smart don't suddenly earn their first $5m go off and buy an annuity. They're more likely to go off and found their own trading shop at 30 than they are to retire. Secondly, you know what happens to people who don't get hired after their internship at Jane Street? They go to HRT, to G Research, to Jump, to Citadel, to Optiver, to IMC, to XTX, if they're really unsuccessful they'll go to Google, Microsoft, Amazon, Meta. These are not people desperate for a job.
- altdataseller 4y ago
  “ Look at all the rich people in the world, look at how old they are, and ask, are they retired? No! People who are driven and smart don't suddenly earn their first $5m go off and buy an annuity.” No but having the freedom to start your own trading shop (or company) is hugely different than having to stick with a job you mostly don’t like to pay the bills
- benreesman 4y ago
  I think the author meant "could retire very comfortably in their 30s", and you're correct to point out that's not what it literally says. But as for "could"? Shit you can do that at Google, Microsoft, Amazon, Meta if you're in that league and start out of undergrad. In my experience (more than a few of my FAANG-era colleagues either came from or went to high-technology finance), people don't actually leave Google to go to Jane for the money (which is similar at the p99), if you're a baller willing to pull the hours you can make many millions a year in either place. I think people go to high-technology finance because they want to test themselves against a harder class of problem in a more adversarial setting against people who feel the same. That's anecdotal, but my sample size is more than two or three.
  - fiprofessor 4y ago
Orochikaku 4y ago
Signals and Threads[0] is a podcast featuring interesting conversations from engineers at Jane Street [0] https://signalsandthreads.com/ https://signalsandthreads.com/
- cosmic_quanta 4y ago
  Thank you for the suggestion. Looks like it's doesn't get published often though
  - kyawzazaw 4y ago
    Yaron Minksy is probably too busy. But the tech blog is really good too. https://blog.janestreet.com/ https://blog.janestreet.com/
- benrow 4y ago
  Very interesting podcast - crazy stuff relating to the very edge of possibility in low latency computing.
adave 4y ago
This reads like a very rosy picture of what these firms actually do. Surely they are secretive and tight lipped about all the money being made in low risk trades. There are known loopholes that market makers get to exploit since they help keep the casino going. No need to make its a noble profession or compare to impact to actual economy or mankind. These are the worst of the worst when its comes to exploitative and manipulative behavior to make money over retail trades just as a Hedge fund selling CDO's to pension funds.
- hawk_ 4y ago
  > to make money over retail trades You can call them vampire squid from hell but they don't exactly take money from retail, they tighten spreads for them if anything.
  - md_ 4y ago
    Wouldn't electronic front running take money from regular folks? Perhaps not from retail trades, but from mutual/index funds, pension funds, etc.
    - thw09j9m 4y ago
      Front running is illegal. However, making a better price prediction than the rest of the market and trading on it is not the same thing as front running. [1] https://www.investopedia.com/terms/f/frontrunning.asp#:~:text=Front%2Drunning%20is%20illegal%20and,publicize%20the%20reasoning%20behind%20it https://www.investopedia.com/terms/f/frontrunning.asp#:~:tex....
      - md_ 4y ago
        Hmm, I don't think that answers the question. See https://www.nyujlb.org/single-post/2017/11/27/high-frequency-trading-electronic-frontrunning-and-structural-insider-trading-under-the-e https://www.nyujlb.org/single-post/2017/11/27/high-frequency... (which is EU-specific). I think https://www.cnbc.com/2014/04/03/high-frequency-traders-cant-front-run-anyonecommentary.html https://www.cnbc.com/2014/04/03/high-frequency-traders-cant-... is suggesting that this is similarly legal in the US. Again, not an expert.
badpun 4y ago
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.
- benreesman 4y ago
  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.
  - badpun 4y ago
    I mean stuff is either interesting for someone or it's not. Money is not relevant to being interested by something. I think people want to convince themselves that they're interested in high paying jobs such as those at Jane Street because that would make their lifes much easier (they could go work there and make lots of money). Similarly, some women try to convince themselves that they love this well-off, solid guy who's courting them - marrying such guy would make their lives much easier and nicer.
    - lhnz 4y ago
      There's nothing wrong with pursuing money.
    - robertlagrant 4y ago
      Money does make some things easier. People make job choices based on: - lifestyle - how much does this job affect my work/life balance? Do I have to travel far / work late? - challenge - how hard is it? Will I enjoy the work? - impact - what's the mission of the company? What am I contributing to? - salary - how does the job fit with my financial goals? - prestige - can I talk about / be celebrated for what I do? Possibly other factors as well. But if everything is equal, but one job pays more than another (and if it's Jane Street, one year's work might be 3 years' work somewhere else) then it makes sense to take it.
    - 4y ago
p4bl0 4y ago
The first argument made in favor OCaml is very similar to Paul Graham's Beating the average (http://www.paulgraham.com/avg.html http://www.paulgraham.com/avg.html), if anyone wants to read more about that kind of reasoning.
howling 4y ago
> The other mitigation strategy is: just buy some puts. I wonder who are the counterparties selling puts to Jane Street. My cynical view is that they are losing overall but the traders don't care because they are winning in short term (when nothing happens) and may have already changed their job when the market crashes.
- adchari 4y ago
  They don’t really have to be losing in the long term, being short deep out-of-the-money puts nets you an option premium if the underlying never crashes, and once you delta-hedge that position, you can remove the tail risk from your portfolio
  - howling 4y ago
    Yes it's not necessary for them to be losing in the long term for Jane Street to be profitable, but I suspect they are.
deleted 4y ago
[deleted]
Ntrails 4y ago
> the winners get a job from which people routinely retire rich in their 30s I'd love to know where this claim comes from! I'm not sure how much/what supporting evidence there is. It doesn't fit _my_ experience of people in Quant Finance. Of course, what does "routinely" mean here? 20%? More?
JackFr 4y ago
> it's hard to argue with success: Jane Street earned $6.3bn in the first half of 2020, up more than 10x from the year before ($, FT). It’s actually quite easy to argue with that. It’s 1 (or 2 at best) data points. 6.3bn is meaningless without knowing the capital put to work to achieve that. And finally if your 10x YoY it’s just as likely you had a bad year before as a good one this year.
- deleted 4y ago
  [deleted]
- logicchains 4y ago
  Apparently most of that came from arbitraging bond ETFs and bonds. The spreads started to diverge in early 2020 when covid was just coming out, and Jane Street had the balls (and cash) to hold until the spreads converged. Helped significantly by the US fed pumping a bunch of money into the market.
pedrocr 4y ago
There's one thing that always baffles me about this kind of market work. Let's for the sake of argument assume that HFT and other sophisticated market making activities are crucial for price discovery and other great social benefits. Then why does this amazingly important social good get mostly turned off over 80% of the time[1]? Even as a retail buy-and-hold investor in boring ETFs not being able to trade outside normal office hours is an inconvenience. Surely the world economy has even more uses for trading at all hours than me? [1] https://www.nyse.com/markets/hours-calendars https://www.nyse.com/markets/hours-calendars
- c-fe 4y ago
  Without arguing in favor or against the usefulness of HFT, the reason trading hours are limited is to increase liquidity during the specific hours that trading takes place. Liquidity is important for various reasons, in particular it helps reduce spread and thus there are better prices. Trading during other hours is possible, either during pre-market or after-hours, and there are even exchanges that enable trading on weekends, for example https://www.ls-tc.de/de/faq https://www.ls-tc.de/de/faq . During weekend trading, the spread is significantly higher.
- xitrium 4y ago
  I will say up front that I don't think the social good is worth what we are collectively paying for it, but I do think the market hours are a reasonable device. This is basically because there are humans involved and they need to sleep (Matt Levine has written about this). If you want the best price, you need to have all of the market participants bidding together. Market hours serve as a coordinated period in which ~all market participants agree to be online and bidding. Prices, thus, get stale overnight. But we assume that that is mostly okay, as business is normally conducted during business hours, and we assume that transactions can wait until the next day. ACH transfers take multiple days! (technically so do stocks, but that's mostly invisible to retail traders). If you're a retail trader, I would caution you somewhat against trading after-hours; there is very little liquidity and it could cost you 100s of bps more.
- NavinF 4y ago
  Legacy reasons. You can trade outside of market hours just fine and many products (e.g. E-mini S&P 500) trade all night. It's just that a lot of companies publish news right after the market closes so prices are more volatile. And people sleep or play videogames at night so there's less liquidity.
imranq 4y ago
Nice article. It would be great to see a similar one about DeepMind
null0pointer 4y ago
Most of this article is pretty interesting and unusually insightful about quant firms. But I find this sentence to be utterly disgusting. > Trading is a lottery operated by market makers, and like the lottery its social function is to convert mass innumeracy into funding for better causes. It’s basically saying “we should have your money because we know better than you”. Maybe true, but I find it a very weak argument for the social function of a quant firm. Especially when lotteries are essentially a form of regressive taxation.
- smabie 4y ago
  Isn't this what taxes are? Also just ignore that line, it's not actually true.
unixbane 4y ago
Why do all these companies with pretentious attitudes exist when the average* software still takes 30 seconds to show a paragraph of text? Ironically whenever these companies take the security test, they not only fall flat on their face, but are proven to not have the slightest clue how to do basic stuff like string escaping. I actually looked at the code for one of the top Haskell companies with the same attitude, and the story I just wrote is precisely what happened. Jane street sounds like a level 2 company like these Haskell companies and Cloudflare: They can escape strings, but only in places that have been famously exploited thousands of times, like SQL; they don't know how to actually know when the problem presents itself in a different unusual context, which they may have made themselves. It seems you need a million dollar employee income to reach level 3, and for level 4+ you simply need to be someone who is genuinely interested in the topic (as there is no monetary incentive) and have spent 10 years reaching it. Also, this applies to all aspects of tech, not just software security. * not even average, this describes almost all software made in the last 20 years.
- smabie 4y ago
  What does string escaping have to do with market making?
flerovium 4y ago
This is wrong. The 100 poker-chips interview thing = interview BEFORE internship. As you would expect, a job offer is based on full internship performance. I don't have personal experience but I have friends who interviewed there.
jgerrish 4y ago
I first heard about Jane Street taking the first computational linguistics course that used OCaml. I followed them over the next decade, every couple years seeing them pop up. The given reasons for using Ocaml outlined in this article is interesting. It makes reasoning about complex systems easier. And making an "esoteric choice" earlier has advantages in hiring. Assuming you give back to keep it going. I don't have the advantage of secrecy where I'm at. But I'd be willing to guess that strategy could apply to other languages and markets. Have fun first movers.
s0brangkyu7 4y ago
thoughty52@gmail.com

671 points by mxtihvb 4y ago

Generally good article that delves into how a market maker functions. Couple points: Re EA: quoting my boss, EA isn't really a dominant thing in the market maker space, it's pretty much only espoused by a couple high profile individuals (mainly, SBF). Re strategy: point about how there's little strategy involved in being a market maker is off-base. Everything is ultimately strategy: do I continue to pour resources into a strategy that is losing money in the hopes of eventually seeing pnl? What markets should I focus on? What is the best use of time for each employee that maximizes pnl/head? etc etc One thing that I thought article got right is that most work involved in market making is about avoiding trades, not making them. Capturing the bid ask spread is conceptually easy. The hard part is avoiding trading with toxic counterparties. Part about put options is especially apt. Market making during a crash / recession (like right now) is especially difficult because all the non-toxic counterparties have stopped trading as much (people like to trade a lot more during a bull market than a bear one). By setting up a structure such that you profit during a crash (either by buying puts, leaning net short, or through some other method), you introduce an uncorrelated return stream that can really help.

quickthrower2 4y ago
Does a market maker consider another market maker “toxic” by your definition? I assume by “toxic” you mean too smart? Or do you mean they cheat?
- ReggieCommaRose 4y ago
  Usually too smart, on rare occasion they cheat. MMs inherently deal with information assymetry and adverse selection because they generally stand ready providing liquidity with quotes out in the world (though obviously width matters). Toxic counterparties are parties who decide to trade against you who have a better idea about “true” price than you. They might make or they might not, depends if the degree in which they’re right overcomes the spread they crossed. Other MMs can be (and often are) toxic.
  - viet1 4y ago
    or doing latency arbitrage
    - matred 4y ago
      that falls into the category of knowing the “true” price better than you do
- hackerlight 4y ago
  "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 that order and push the price against you.
  - smabie 4y ago
    Flow from other HFT / market makers is often very toxic. They are playing the exact the game as you.
    - hchz 4y ago
      Right, sure, and that game is not lifting the market, generally speaking.
      - smabie 4y ago
        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.
      - twic 4y ago
        Other market makers are often moving away from something they've seen but you haven't yet. When whatever that is hits you, the fills you got from the other market maker will look really bad.
        matred 4y ago
        Sure, but those short-term active strategies have little impact next to what big paper will lift in major macro markets.
paulpauper 4y ago
). By setting up a structure such that you profit during a crash (either by selling puts, leaning net short, or through some other method), you introduce an uncorrelated return stream that can really help isn't selling puts directional? One strategy could be something like trying to find a way to bet on volatility but without a negative carry or at least as small as possible...this is hard to do. Taleb's universa fund tries to do this.
- deleted 4y ago
  [deleted]
- smabie 4y ago
  Sorry I meant to say buying puts (and have edited comment). Buying puts is directional and has negative carry. That's often fine because when your puts aren't making money your market making strategies should be doing well and vice versa
jefftk 4y ago
> EA isn't really a dominant thing in the market maker space The article doesn't say it's dominant, it says "There is a weirdly high overlap between quant finance and Effective Altruism in general, and between Jane Street and EA in particular (it is emphatically not 100%)" I know quite a few EAs who work or worked at Jane Street, much lower profile than SBF. What the article misses is that a lot of EAs specifically went into finance because if you're looking to earn money to donate it's one of the places you can earn the most, and not because of "where they advertise jobs" or "overlap in outlooks".

bob29 4y ago

bthrn 4y ago
Market making is a very important role.
orange3xchicken 4y ago
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 efficiently run market. Whether or not automated market makers contribute to this could be up for debate, I guess.
- bob29 4y ago
  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 told to cheer for those faciliting the ever-increasing wealth disparity of society.
  - hackerlight 4y ago
    > 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? Investing in real estate for years is not related to market making stocks with a holding period of 5 minutes.

keepquestioning 4y ago

My greatest regret is not getting into this firm

CoolGuySteve 4y ago
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 process hazing ritual that sets the allure, there's not much else to it.
- idontpost 4y ago
  There's also the boat loads of money.
- Inconel 4y ago
  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.
  - simtel20 4y ago
    Often a background or a degree from a prestigious university in the arts. Bringing culture and energy to the office that focuses on people and humanity instead of competitive math type geeks. Some firms like to feel like patrons of the arts giving writers actors poets etc a better job than waiting tables while exposing the firm to there influences.
    - 4y ago

paulpauper 4y ago

1. 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 happens at the end of Jane Street internships: interns get a stack of 100 poker chips and spend half a day getting asked brainteasers and then betting on their confidence in the answers. Some of these questions might be pure math and probability questions, some might be more abstract bets on making a market in some outcome, and apparently one of the questions is a tough probability question where part of the prompt is to bet on how long it will take to get the answer.1 I dunno why brain teasers are so important. I increased my account by 5x since the lows of covid to present with simple large cap tech and etf strategies (tesla ,tqqq, tecl, amazon, and others ). I don't need to mentally visualize 3d shapes intersecting 2-d planes or count colored vertices of hypercubes to make money or develop good strategies. Just some basic calculations and some other analysis..maybe advanced high school level. It's like if you want to find good traders, look for people with good track records. If I were going to start a fund, I would do away with the puzzles. Instead what I would do is look for people who seem to have good track records on reddit or elsewhere and some decent risk management, like on wallstreetbets. There are thousands of users there and then I would try to find the best ones and try to quiz them on risk management to see if they are relying on luck or have a system. Recruiting from reddit or twitter is harder than linkedin, but I think the quality is better because you are seeing actual traders in their element. instead of hoping that puzzle skill will lead to trading skill, you just pick people who are already good. Continued: The other mitigation strategy is: just buy some puts. Markets usually don't crash upwards, but they do have a habit of crashing downwards. And for a market-maker, a crash is a uniquely interesting situation: volume is high, spreads rocket up because people are afraid to trade or don't have the liquidity, so an active participant can make a staggering amount of money. (I liked this Reddit AMA: "Yeah, 08-09 was insane. I've heard stories. No one knew what the fuck was going on and everyone was on edge. Then it all turned out fine and everyone got PAID.") Puts bleed out a lot. Even during bear markets they lose money if the path dependency is unfavorable. The covid crash would have been perfect, but the 2022 bear market has been much more gradual, so puts would have done more poorly. Yes, the 'crashing down' aspect is captured by the skew or smile. That's why a 20% ITM put will have a much higher IV than a 20% OTM call or be much higher than predicted by the volatility of the underlying. In some cases it will be massive...like a 38% IV compared to 11% for the underlying. So many people have tried to make put strategies work, and I have yet to see anyone do it, but if someone actually could I imagine they would not tell.

mupuff1234 4y ago

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

hajile 4y ago
These kinds of firms are one big reason we need a sales tax on stock trades. Stable, long-term investments are much better for the economy.
missedthecue 4y ago
-
- JohnJamesRambo 4y ago
  Why should that be less?
dcolkitt 4y ago
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)
- zellix 4y ago
  Pretty much, except for Susquehanna. See https://www.propublica.org/article/jeff-yass-susquehanna-tiktok-tax-avoidance https://www.propublica.org/article/jeff-yass-susquehanna-tik... for details.
  - ocfnash 4y ago
    Assuming it is accurate, the final sentence in this article is especially notable.
nly 4y ago
They'll have their cost centers in places like NY and London incorporated separately, making consistent losses, and then the arm doing actual trading will be in Bermuda or somewhere with 0% business tax.

julianeon 4y ago

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 a commodity business.

orange3xchicken 4y ago
At least on the quant side, I think the typical sentiment is that most researchers aren't interested in ops / developing infrastructure / curating datasets.
- Scarbutt 4y ago
  How does that answers their question?
  - simtel20 4y ago
    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.
ReggieCommaRose 4y ago
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.

hahnchen 4y ago

Sooooo hard to get hired here. I’m convinced it’s impossible without a referral or something

jwilber 4y ago
The interviews are definitely hard, but I can confirm the recruiters will reach out to you directly if they find your profile interesting.
- hahnchen 4y ago
  Sounds reasonable. In the past I applied for an internship and got resume rejected for swe, they seem rather elusive…
LewisVerstappen 4y ago
Are you talking about a trading role or an engineering role?
- hahnchen 4y ago
  engineering
vecter 4y ago
They'd be silly to not interview someone who applied with strong quantitative background. Once you make the interview, it's all up to you. No amount of referrals will make up for a poor interview.
david_allison 4y ago
No it's not, but it is impossible with that attitude.
kenned3 4y ago
As I posted above.. I have family who work there. They were not a "referral or something". I also worked at a hedge fund myself, and i was not a "referral" either. They post positions online, apply. if you have the skills they are looking for you can get in.

joshsyn 4y ago

benreesman 4y ago

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 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 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-Transforming/dp/0691211388 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.

melony 4y ago
Since this is Hacker News, let's not beat about the bush. Here's a channel that actually go through derivatives pricing without hiding the math: https://youtube.com/c/QuantPy/videos https://youtube.com/c/QuantPy/videos
- benreesman 4y ago
  Thank you kindly for what looks like a great resource! I've been trying to put myself through YouTube night school on some of this stuff, and MIT OCW has great resources as well at significantly less cost than going to MIT ;) This is a pretty reasonable jumping off point for their corpus of financial engineering stuff: https://www.youtube.com/watch?v=HdHlfiOAJyE https://www.youtube.com/watch?v=HdHlfiOAJyE. I'm fortunate enough to work with a person who actually understands derivatives trades with some sophistication, but that's a happy accident and the more people have access to good online resources the better! Edit: I forgot to mention this book (https://www.amazon.com/Algorithmic-Trading-DMA-introduction-strategies/dp/0956399207 https://www.amazon.com/Algorithmic-Trading-DMA-introduction-...) in the spirit of something more technical than the general-audience one I linked above. I have some nitpicks with it as well, but I've gotten value out of it.

faangiq 4y ago

For all the mysticism surrounding them, what they do is very simple. They just do it well.

j7ake 4y ago

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 scientifically, but you’ll be far ahead financially.

benreesman 4y ago
Not to mention that tightening spreads, deepening books, and equalizing prices across regulatory/financial/geographical regimes is a pretty serious social good in its own right. I understand that (as the article mentions) these folks clean up when the wheels have already come off anyways, but day-in-day-out, the spread on AAPL is one tick ($0.01) nowadays, rather than the 1/8ths that you'd get quoted by some loud guy from Jersey 30 years ago. Citations on this stuff are hard to come by, but it does seem at least directionally true that these advanced actors are making less money over time even as the problem becomes harder. If that's true, it's money not going into the pocket of a middle-man somewhere. Multiply that by everyone's retirement account and we're talking real money.
- spoonjim 4y ago
  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.
  - benreesman 4y ago
    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 account, across everyone with a retirement account it adds up. I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two. There are exceptions: 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.

bibabaloo 4y ago

From the article: > One example of this is NAV trading (Jane Street has a paper here), where an investor wants to place a large trade in an ETF and agrees to buy it at some future point at whatever its net asset value is, less some small fee. Should this say "agrees to buy it at some future point at whatever its net asset value is *NOW*"? Otherwise, I'm confused, why wouldn't the investor just buy it later?

scajanus 4y ago
Edit: if you remove the second 'at' it makes sense. I think they mean that the buyer will agree to pay $5000 now for say 10 shares (close to current valuation), and get it in a week regardless if they will be worth $0, $5000 or $100000 at that point. They would prefer to buy it now, but can't, and thus are willing to pay a fee to make it happen. However, the motivation (and pricing) is different from futures trading: here the buyer would prefer to buy the asset immediately, but because of market inefficiencies or unavailability it's not possible. So some dealer figures he can make that happen in a week, takes a small fee, and agrees to the trade. In the meantime, the dealer might want to buy something that correlates with the value of the actual asset to cover his bet -- e.g. they might be able to buy most of the stocks in the ETF in roughly the same amounts, and just accept the remaining risk. There is however a chance that they will not be able to complete the transaction.
- josu 4y ago
  No, the original statement is correct. Page 3 of the linked paper has a diagram. https://www.janestreet.com/wp-content/themes/janestreet/pdf/Important_Considerations_for_NAV_Based_ETF_Trading.pdf https://www.janestreet.com/wp-content/themes/janestreet/pdf/...

jackblemming 4y ago

This and getting people to click more ads. What a great use of innovation and bright minds.

Hammershaft 4y ago
I agree, genuinely depressing to think of what is lost from talent being allocated this way.
- smabie 4y ago
  Ignoring the fact that liquidity provisioning is a very valuable service (if it wasn't, people wouldn't pay for it), what are you doing that is so world changing?
jeffreyrogers 4y ago
Most of the hard problems in the world aren't technical and the ones that are have lots of people working on them.
nickkell 4y ago
It's trickle-down programming. They're inventing the next big database technology or whatever by doing busy work and that will eventually enable somebody else to produce something of actual value to mankind.

pigtailgirl 4y ago

-- only managed to make it half way through the article so apologies if this was covered later - re: the intern game - if the game is confidence in the probability of your answers - couldn't you deliberately get the answers wrong and just bet low confidence in your answers? - this seems like a really stupid comment on my part so I presume I'm missing something important --

dannyw 4y ago
No context around Jane Street, but I'd expect the goal to still be maximising your return / value. The people who are better at assessing probability and risk will have a higher value in aggregate. Filter out those who made bets too big to avoid outliers.
_lpa_ 4y ago
Presumably the goal is to have a lot of chips at the end (more than you started with?). I would assume if you bet 10 chips, you get 10 for being right, and zero for not. So betting 0 chips all the time probably won't get you the job!
Krastan 4y ago
You only get more tokens when you're right. So to "win" you have to bet high when you know you'll be right, so you get the most tokens, and bet low when you're not sure so you don't lose too many. Getting it wrong only loses you tokens.

mgaunard 4y ago

Quite a few inaccuracies in there. The ones that jump at me: - OCaml does type inference, so you don't actually declare the types and have the compiler check them, as stated in the article. - Investors are not market-makers, the two words actually refer to the two types of opposed participants in the market. - OCaml is the language used for research, but they actually have a lot of developers working on the compiler and on libraries for OCaml which are themselves implemented in C or C++. - Jane Street is hiring massively and not nearly as exclusive as advertised here, though they do indeed pay slightly above the average. Most likely they had a few good years and are investing the cash they made into hiring expensive staff.

Gene_Parmesan 4y ago
Yes, it uses ML-style type inference, but that doesn't mean you are literally unable to annotate types, and the compiler is absolutely still doing type checking. I'm sure people like Jane Street annotate everything. In addition, perhaps a small point relative to the first, but in Ocaml, the arithmetic operators perform no type inference; there's a separate operator for float-addition versus int-addition, and so on. This somewhat limits your exposure to potential automatic type conversions.
- mgaunard 4y ago
  That is not the idiomatic way to use OCaml, so I wouldn't assume they do that.
  - LeonidasXIV 4y ago
    Writing `mli` files is pretty much idiomatic or at the very least, not unusual.
    - mgaunard 4y ago
      Only for the public API boundary.
  - SonOfLilit 4y ago

SilverBirch 4y ago

>the winners get a job from which people routinely retire rich in their 30s, and the losers... don't Honestly, I find this ridiculous. Firstly, Yes, working at Jane Street is a well paying job and you'll do well out of it. No. People aren't routinely retiring in their 30s. I don't understand where this absurd idea comes from. Look at all the rich people in the world, look at how old they are, and ask, are they retired? No! People who are driven and smart don't suddenly earn their first $5m go off and buy an annuity. They're more likely to go off and found their own trading shop at 30 than they are to retire. Secondly, you know what happens to people who don't get hired after their internship at Jane Street? They go to HRT, to G Research, to Jump, to Citadel, to Optiver, to IMC, to XTX, if they're really unsuccessful they'll go to Google, Microsoft, Amazon, Meta. These are not people desperate for a job.

altdataseller 4y ago
“ Look at all the rich people in the world, look at how old they are, and ask, are they retired? No! People who are driven and smart don't suddenly earn their first $5m go off and buy an annuity.” No but having the freedom to start your own trading shop (or company) is hugely different than having to stick with a job you mostly don’t like to pay the bills
benreesman 4y ago
I think the author meant "could retire very comfortably in their 30s", and you're correct to point out that's not what it literally says. But as for "could"? Shit you can do that at Google, Microsoft, Amazon, Meta if you're in that league and start out of undergrad. In my experience (more than a few of my FAANG-era colleagues either came from or went to high-technology finance), people don't actually leave Google to go to Jane for the money (which is similar at the p99), if you're a baller willing to pull the hours you can make many millions a year in either place. I think people go to high-technology finance because they want to test themselves against a harder class of problem in a more adversarial setting against people who feel the same. That's anecdotal, but my sample size is more than two or three.
- fiprofessor 4y ago

Orochikaku 4y ago

Signals and Threads[0] is a podcast featuring interesting conversations from engineers at Jane Street [0] https://signalsandthreads.com/ https://signalsandthreads.com/

cosmic_quanta 4y ago
Thank you for the suggestion. Looks like it's doesn't get published often though
- kyawzazaw 4y ago
  Yaron Minksy is probably too busy. But the tech blog is really good too. https://blog.janestreet.com/ https://blog.janestreet.com/
benrow 4y ago
Very interesting podcast - crazy stuff relating to the very edge of possibility in low latency computing.

adave 4y ago

This reads like a very rosy picture of what these firms actually do. Surely they are secretive and tight lipped about all the money being made in low risk trades. There are known loopholes that market makers get to exploit since they help keep the casino going. No need to make its a noble profession or compare to impact to actual economy or mankind. These are the worst of the worst when its comes to exploitative and manipulative behavior to make money over retail trades just as a Hedge fund selling CDO's to pension funds.

hawk_ 4y ago
> to make money over retail trades You can call them vampire squid from hell but they don't exactly take money from retail, they tighten spreads for them if anything.
- md_ 4y ago
  Wouldn't electronic front running take money from regular folks? Perhaps not from retail trades, but from mutual/index funds, pension funds, etc.
  - thw09j9m 4y ago
    Front running is illegal. However, making a better price prediction than the rest of the market and trading on it is not the same thing as front running. [1] https://www.investopedia.com/terms/f/frontrunning.asp#:~:text=Front%2Drunning%20is%20illegal%20and,publicize%20the%20reasoning%20behind%20it https://www.investopedia.com/terms/f/frontrunning.asp#:~:tex....
    - md_ 4y ago
      Hmm, I don't think that answers the question. See https://www.nyujlb.org/single-post/2017/11/27/high-frequency-trading-electronic-frontrunning-and-structural-insider-trading-under-the-e https://www.nyujlb.org/single-post/2017/11/27/high-frequency... (which is EU-specific). I think https://www.cnbc.com/2014/04/03/high-frequency-traders-cant-front-run-anyonecommentary.html https://www.cnbc.com/2014/04/03/high-frequency-traders-cant-... is suggesting that this is similarly legal in the US. Again, not an expert.

badpun 4y ago

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.

benreesman 4y ago
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.
- badpun 4y ago
  I mean stuff is either interesting for someone or it's not. Money is not relevant to being interested by something. I think people want to convince themselves that they're interested in high paying jobs such as those at Jane Street because that would make their lifes much easier (they could go work there and make lots of money). Similarly, some women try to convince themselves that they love this well-off, solid guy who's courting them - marrying such guy would make their lives much easier and nicer.
  - lhnz 4y ago
    There's nothing wrong with pursuing money.
  - robertlagrant 4y ago
    Money does make some things easier. People make job choices based on: - lifestyle - how much does this job affect my work/life balance? Do I have to travel far / work late? - challenge - how hard is it? Will I enjoy the work? - impact - what's the mission of the company? What am I contributing to? - salary - how does the job fit with my financial goals? - prestige - can I talk about / be celebrated for what I do? Possibly other factors as well. But if everything is equal, but one job pays more than another (and if it's Jane Street, one year's work might be 3 years' work somewhere else) then it makes sense to take it.
  - 4y ago

p4bl0 4y ago

The first argument made in favor OCaml is very similar to Paul Graham's Beating the average (http://www.paulgraham.com/avg.html http://www.paulgraham.com/avg.html), if anyone wants to read more about that kind of reasoning.

howling 4y ago

> The other mitigation strategy is: just buy some puts. I wonder who are the counterparties selling puts to Jane Street. My cynical view is that they are losing overall but the traders don't care because they are winning in short term (when nothing happens) and may have already changed their job when the market crashes.

adchari 4y ago
They don’t really have to be losing in the long term, being short deep out-of-the-money puts nets you an option premium if the underlying never crashes, and once you delta-hedge that position, you can remove the tail risk from your portfolio
- howling 4y ago
  Yes it's not necessary for them to be losing in the long term for Jane Street to be profitable, but I suspect they are.

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Ntrails 4y ago

> the winners get a job from which people routinely retire rich in their 30s I'd love to know where this claim comes from! I'm not sure how much/what supporting evidence there is. It doesn't fit _my_ experience of people in Quant Finance. Of course, what does "routinely" mean here? 20%? More?

JackFr 4y ago

> it's hard to argue with success: Jane Street earned $6.3bn in the first half of 2020, up more than 10x from the year before ($, FT). It’s actually quite easy to argue with that. It’s 1 (or 2 at best) data points. 6.3bn is meaningless without knowing the capital put to work to achieve that. And finally if your 10x YoY it’s just as likely you had a bad year before as a good one this year.

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logicchains 4y ago
Apparently most of that came from arbitraging bond ETFs and bonds. The spreads started to diverge in early 2020 when covid was just coming out, and Jane Street had the balls (and cash) to hold until the spreads converged. Helped significantly by the US fed pumping a bunch of money into the market.

pedrocr 4y ago

There's one thing that always baffles me about this kind of market work. Let's for the sake of argument assume that HFT and other sophisticated market making activities are crucial for price discovery and other great social benefits. Then why does this amazingly important social good get mostly turned off over 80% of the time[1]? Even as a retail buy-and-hold investor in boring ETFs not being able to trade outside normal office hours is an inconvenience. Surely the world economy has even more uses for trading at all hours than me? [1] https://www.nyse.com/markets/hours-calendars https://www.nyse.com/markets/hours-calendars

c-fe 4y ago
Without arguing in favor or against the usefulness of HFT, the reason trading hours are limited is to increase liquidity during the specific hours that trading takes place. Liquidity is important for various reasons, in particular it helps reduce spread and thus there are better prices. Trading during other hours is possible, either during pre-market or after-hours, and there are even exchanges that enable trading on weekends, for example https://www.ls-tc.de/de/faq https://www.ls-tc.de/de/faq . During weekend trading, the spread is significantly higher.
xitrium 4y ago
I will say up front that I don't think the social good is worth what we are collectively paying for it, but I do think the market hours are a reasonable device. This is basically because there are humans involved and they need to sleep (Matt Levine has written about this). If you want the best price, you need to have all of the market participants bidding together. Market hours serve as a coordinated period in which ~all market participants agree to be online and bidding. Prices, thus, get stale overnight. But we assume that that is mostly okay, as business is normally conducted during business hours, and we assume that transactions can wait until the next day. ACH transfers take multiple days! (technically so do stocks, but that's mostly invisible to retail traders). If you're a retail trader, I would caution you somewhat against trading after-hours; there is very little liquidity and it could cost you 100s of bps more.
NavinF 4y ago
Legacy reasons. You can trade outside of market hours just fine and many products (e.g. E-mini S&P 500) trade all night. It's just that a lot of companies publish news right after the market closes so prices are more volatile. And people sleep or play videogames at night so there's less liquidity.

imranq 4y ago

Nice article. It would be great to see a similar one about DeepMind

null0pointer 4y ago

Most of this article is pretty interesting and unusually insightful about quant firms. But I find this sentence to be utterly disgusting. > Trading is a lottery operated by market makers, and like the lottery its social function is to convert mass innumeracy into funding for better causes. It’s basically saying “we should have your money because we know better than you”. Maybe true, but I find it a very weak argument for the social function of a quant firm. Especially when lotteries are essentially a form of regressive taxation.

smabie 4y ago
Isn't this what taxes are? Also just ignore that line, it's not actually true.

unixbane 4y ago

Why do all these companies with pretentious attitudes exist when the average* software still takes 30 seconds to show a paragraph of text? Ironically whenever these companies take the security test, they not only fall flat on their face, but are proven to not have the slightest clue how to do basic stuff like string escaping. I actually looked at the code for one of the top Haskell companies with the same attitude, and the story I just wrote is precisely what happened. Jane street sounds like a level 2 company like these Haskell companies and Cloudflare: They can escape strings, but only in places that have been famously exploited thousands of times, like SQL; they don't know how to actually know when the problem presents itself in a different unusual context, which they may have made themselves. It seems you need a million dollar employee income to reach level 3, and for level 4+ you simply need to be someone who is genuinely interested in the topic (as there is no monetary incentive) and have spent 10 years reaching it. Also, this applies to all aspects of tech, not just software security. * not even average, this describes almost all software made in the last 20 years.

smabie 4y ago
What does string escaping have to do with market making?

flerovium 4y ago

This is wrong. The 100 poker-chips interview thing = interview BEFORE internship. As you would expect, a job offer is based on full internship performance. I don't have personal experience but I have friends who interviewed there.

jgerrish 4y ago

I first heard about Jane Street taking the first computational linguistics course that used OCaml. I followed them over the next decade, every couple years seeing them pop up. The given reasons for using Ocaml outlined in this article is interesting. It makes reasoning about complex systems easier. And making an "esoteric choice" earlier has advantages in hiring. Assuming you give back to keep it going. I don't have the advantage of secrecy where I'm at. But I'd be willing to guess that strategy could apply to other languages and markets. Have fun first movers.

s0brangkyu7 4y ago

thoughty52@gmail.com