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Math prodigy runs market-making empire
- HN_is_for_gemes 3y ago[dead]
- karaokeyoga 3y agohttps://archive.md/QjxNS https://archive.md/QjxNS
- catchnear4321 3y ago> Among the CEOs of Wall Street’s key firms, Zhao has kept an unusually low profile. those glossy photos taken by none other than Bloomberg (for the “article” perhaps?) just screams “unusually low profile.”
- melling 3y agoThis was posted 4 days ago. Unfortunately, people didn’t have much to say then either. The idea that math can effectively be used to “beat the market” seems like a fascinating subject where few want to divulge the secrets. Math has been used for decades: https://www.amazon.com/Beat-Market-Scientific-Stock-System/dp/0394424395 https://www.amazon.com/Beat-Market-Scientific-Stock-System/d... https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/073521798X https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/0... One idea that does come up is reversion toward the mean, but few details are offered.
- astrange 3y ago"Market-making" doesn't involve "beating the market", it means providing a service for fees. (That said, you need similar trading skills, otherwise the people "beating the market" will rip you off.)
- cuteboy19 3y agoMarket making itself is a market, and people compete on cost and speed
- hackernewds 3y agothat seems like an over simplification. however I do have an aversion to "MBA types" skimming over complicated concepts with the blanket "nerdy mathematics" techniques.
- gbasin 3y agoit's not... it's competing in the market for profits. citadel makes plenty of money from trading, separate from fee-based business
- is_true 3y agoThere are markets that pay people to trade to provide liquidity.
- vgatherps 3y agoI’m pretty sure Citadel securities makes more money from their non-wholesale businesses (I.e. on-exchange trading) instead of their retail pfof business. Either way, they are very successful in the competitive hft/trading arm as well as retail. The hedge fund quant arm is also extremely successful.
- astrange 3y agoI agree with this, but the comment I replied to is responding to an article about market-making.
- vgatherps 3y agoCitadels’s market-making arm, Citadel Securities, IS extremely competitive in on-exchange trading. They don’t just do wholesale market making (I.e. service for a price), they provide liquidity on-exchange as well (much more competitive/latency/alpha based than service-at-a-price). They’re also very good at the hft taking. Given, within Citsec, the retail market making arm is fairly segregated for compliance reasons, but it’s far from the only market making activities they engage in.
- hackerlight 3y agoIn reality there isn't a distinction between "market-making" and what you would consider "beating the market". Market makers employ the same models and approaches as those who "beat the market", because market makers need to know when and where to quote in order to maximize profitability. And people who classify themselves as those that try to "beat the market" also provide liquidity, making them de facto market makers, even if they often take liquidity too. So, people in the industry don't attempt to draw a clear line between the two categories, because they are so overlapping in practice.
- rr808 3y agoHalf of Citadel beats the market, the other half are market makers who just make markets and make a steady income from doing so.
- danpalmer 3y agoJust like Bernard L. Madoff Investment Securities. Edit: you can downvote but this is literally what Madoff did – he had a market making business and an investment business. I'm not saying that Citadel is a scam at all, just commenting on the business structure.
- alpark3 3y agoYou're confusing Citadel and Citadel Securities. Citadel the hedge fund runs many different strategies, including commodities trading and quantitative high frequency strategies that are generally what people think of when looking at books like yours. Citadel Securities is a broker-dealer that specializes in market making, and is popular for being one of the biggest(the biggest?) wholesale market maker for U.S. equities, options, ETFs, etc. They're connected, but Ken Griffin is focused on Citadel and Peng Zhao runs CitSec.
- SilasX 3y agoYou're confusing Alameda Capital and FTX. Alameda the hedge fund runs many different strategies, including crypto trading and quantitative high frequency strategies that are generally what people think of when looking at books like yours. FTX is a broker-dealer that specializes in market making, and is popular for being one of the biggest(the biggest?) wholesale market maker for cryptocurrencies, NFTs, etc. They're connected, but Sam Bankman-Fried is focused on FTX and Caroline Ellison runs Alameda.
- thinkmaster3000 3y agoUnless I missed something, wasn't FTX the exchange and Alameda the market making specialist that also had a prop book?
- SilasX 3y agoThe general point stands, that we can't just take their word that they're rigorously separated and not sharing info (a point the HN crowd seems to be missing right now).
- govg 3y agoThe difference is that traditional finance is usually riddled with regulations and legal potholes to find yourself in if you don't follow rules, whereas in crypto the rules consist of whatever validation SBF's excel sheet had.
- motohagiography 3y agoZhao probably has a three or four sigma IQ, but the rest of the talent is still on a pretty long tail, and the beauty of markets is that in every single one of billions of trades, someone is always wrong. I am not in finance, but every person I have spoken to in finance clams up immediately when I mention anything remotely quantitative. It's not just because I'm being boring, they know they are playing a game of poker that is never not-on. The most interesting exchange I had was with some derivatives traders, and I asked broadly what kind of math was being used at their bank. Was it graduate level, was any of it novel, and was it within the reach of programmers. The answer was "no, no, yes" and they wouldn't say anything else. I suspect the secrecy is creating an intellectual mean reversion, where you do a thing that works and run it until it is traded out, and then never say anything about it so you can cost your competitors the time thinking about it. However if none of the math is novel, then current strategies are not information problems that need new science, they are work problems that piece together solved ones, and whose efficiencies come from competency in related domains. I could see how one could become seized by markets like that.
- antihipocrat 3y agoSomeone isn't always wrong on a trade. Case in point, someone sells shares to fund their retirement, the counterparty buys those shares for the dividend return and/or expected capital gains. This happens all the time. How is anyone wrong in this scenario?
- anonymouskimmer 3y agoI agree in principle. But theoretically if the share is expected to go up at faster than the rate of compounded interest at the current interest rate, then it's a better deal for the seller to instead take out a loan using the share as collateral. And if the share is not expected to go up at faster than the rate of compounded interest at the current interest rate, then it might be a better deal for the buyer to loan out their money instead. The only thing that would make this a worse decision than the share trade are middleman costs.
- 3y ago
- SirLJ 3y agoTakes a long time to find the right model, it it is well worth it and if you do find it, you will keep the secret as guarded as possible, otherwise the model will be arbitraged away by the other market participants….
- helsinkiandrew 3y agoYou’re mistaken in how Citadel is using math to make money. It’s not trying to decide which way a stock or bond is moving. It’s a market maker - at anytime someone can go to them and buy or sell an instrument (when no one else might want to take the other side of the deal). Citadel is using math to create the price, decide how much inventory it should keep and create hedging strategies so that it makes a profit however volatile and whatever way the market is going.
- CTmystery 3y agoPaid piece by citadel?
- nelsondev 3y agoSeems likely. Citadel recruits hard from colleges for top students, this sort of piece would put Citadel on the students’ radar.
- latency-guy2 3y agoI don't think Citadel really struggles to be top of mind for the kind of people they want in their company.
- opportune 3y agoThey kind of do, their reputation is like the AWS of quant firms. Like you might get paid about as well as your buddies in “peer firms” but the hiring standards are a little looser and you have a 50% chance of ending up on a team with a hellish WLB guaranteed to burn you out. If they want to rehab their image IMO they need to get KG out of the limelight (which I guess this puff piece does) but also fix their WLB reputation.
- TechBro8615 3y agoMore likely Citadel saying "look over here! We make money from this mysterious math prodigy and not from market manipulation!"
- runsWphotons 3y agoYou're getting down voted but the amount of cutesy and apocryphal anecdotes in that piece was funny.
- photochemsyn 3y agoThe Big Short: "Look at my quant!" https://youtu.be/FoYC_8cutb0 https://youtu.be/FoYC_8cutb0
- jstx1 3y agoBecause of course someone on Wall Street has to ask what a quant is. The movie is lots of fun though, Ryan Gosling’s character is hilarious.
- ackbar03 3y agoThis guy did come first in that national math competition
- rotinNotes 3y agoOh well roll out the red carpet; let’s all set aside ourselves aside for this one guy that is good at the language of math. Grigori Perelman is a better role model. It’s not hard to dupe the majority into believing BS… see religion. This math guy is just a guy taking advantage of the notion no one can disprove their divinity.
- than3 3y agoMy realist mind wonders what kind of risk assessment and oversight is being done on Citadel's side considering they are a 'strategic' target underpinning the US economy in many respects. Its a nice paid piece by Citadel, but really what do we know about what this person's contributions have been? From what I've heard, you don't make it very far in China without going through some form of struggle session at some point. The article doesn't even address the elephant in the room (which is China). Making this soft propaganda. This line of thought makes one wonder if the word prodigy aptly describes his capabilities (or maybe its something else). This is all speculation of course, but it makes you wonder given how egregious China has been about violating sovereignty and laws lately. I mean opening up a clandestine police station on US soil in NY for the purpose of going after Chinese dissidents and other US Citizens of Chinese descent? You can't be much more egregious in violating sovereignty. What kind of risk is there to the financial system if Citadel, overnight, could no longer transact business because the keys of the kingdom were given to a prodigy to make money. Sleeper agents are not an unknown thing in clandestine services. I seriously hope the guy was properly vetted for what its worth. [Ref Link for NY Police Station](https://www.justice.gov/opa/pr/40-officers-china-s-national-police-charged-transnational-repression-schemes-targeting-us https://www.justice.gov/opa/pr/40-officers-china-s-national-...). https://www.justice.gov/opa/pr/two-arrested-operating-illegal-overseas-police-station-chinese-government https://www.justice.gov/opa/pr/two-arrested-operating-illega...
- jjtheblunt 3y agoThis looks like a purposeful distraction from Citadel’s cash cow of “payment for order flow”, which essentially allows them to cache orders at prices delivered to consumers less profitable than what they realize when matching at slightly different times, advantageous to Citadel, from their cache. Consumers using Robinhood famously are handing profit to Citadel, and the Robinhood founders[edit]/shareholders. They kick back a fraction of their profit to ensure apathetically timed orders keep being funneled through Citadel.
- drexlspivey 3y ago> at prices delivered to consumers less profitable than what they realize That’s not true, HFT firms like Citadel are required to improve on the national bid/ask spread. They are saving the consumers money compared to their orders being sent to NYSE or NASDAQ
- lumb63 3y agoOn a given trade, they might be required to provide a benefit to their customers, but what are they able to do with the combined data that is all the others they handle? Surely they are able to manipulate securities based on this data and short/long securities in ways that are typically in opposition to retail, thus costing their “customers” money.
- govg 3y agoHow do they "manipulate" this data in any form? That is not how any of this works, it just sounds like a conspiracy theory talking point to keep saying citadel are conspiring against everyone.
- helsinkiandrew 3y agoThis is nonsense. This isn’t a data mining opportunity. One of the reasons this works is that retail investors are relatively uninformed compared with larger players that are selling large blocks of shares. There are usually as many retail investors selling as buying smallish lots that doesn’t create a large price movement.
- malikNF 3y agohttps://www.reddit.com/r/amcstock/comments/pek85m/what_is_the_ken_griffinmayo_backstory/ https://www.reddit.com/r/amcstock/comments/pek85m/what_is_th...
- objektif 3y agoIt is well known that Bloomberg periodically pushes puff pieces to lure tech talent into Finance. This fees like it is one of them.
- wolrah 3y agoI read the headline as "Ken Griffey's..." and was a lot more interested.
- saeranv 3y agoI think this is the first time I've heard of a successful long-term career, and general life-fufillment from one of these outlier prodigies that are doing difficult university degrees in their early teens or younger. Terence Tao's another one, and in the past there's plenty, i.e. Mozart, John von Neumann etc. But, I typically hear of the other extreme these days - child prodigies that struggle to fit into society and end up underemployed and neurotic. Maybe its just a selection bias (its not newsworthy to report on fufilled, grown-up child-prodigies doing their 10th postdoc in knot theory)...
- opportune 3y agoMost modern “prodigies” are different from those of the past, the main huge difference being that they have insanely motivated tiger parents working the marketing machine and the system to accelerate their child. And indeed a lot of these children are not actually special any more once their non-accelerated peers catch up. Terence Tao is a bit of an exception because he is genuinely a far outlier in talent, and he also got a lot of direct tutoring from world-leading mathematicians (like historical prodigies). Like historical prodigies his achievements spoke for themselves, he may have had an accelerated academic career, but it was not the acceleration itself that was noteworthy. There are plenty of prodigy-level children you never hear about in the news who don’t have parents working the system on their behalf. IMO the news articles like “tested out of HS via GED at 14 and enrolled in local commuter college” is the 30 under 30 of prodigies. Many children could do that, and it’s not even really an indicator of prodigy as much as it is being maybe at the 99%ile.
- steve76 3y ago[dead]
- renewiltord 3y ago[flagged]
- DontchaKnowit 3y agoYeah, I'm in
- smabie 3y agoYep. I agree that HN is a terrible place to a rational financial discussion
- klyrs 3y agoHeadline reminds me of Caroline Ellison. Speaking as a non-prodigy mathematician, I hope this story has a happier ending.
- fakedang 3y ago> his class received two coveted tickets to take a test to enter a prestigious math olympiad. One naturally went to Zhao, the top student, who promptly lost it. No need to worry, he told his father, he didn’t want to go, and if necessary he could ask the school for the other kid's ticket. His dad wouldn’t have it. Enough said about the ethics of this guy.