7 ms·

Jane Street raked in $4.4B at start of 2024

28 points by bblcla 2y ago

ametrau 2y ago
Aren’t these basically risk free trades?
- givemeethekeys 2y ago
  Yes, as long as your system is faster than the next guy.
- TaylorPhebillo 2y ago
  Occasionally but pretty rarely. By the time a trade has become actually risk free, as in "I can instantly buy X here and sell X there and make a profit", someone will have realized that and done the trade when it was almost risk free- the that the price is likely but not guaranteed to go up there- and made the trade first.
- RhysU 2y ago
  No, as operational risk can quickly sink such companies: https://en.m.wikipedia.org/wiki/Knight_Capital_Group https://en.m.wikipedia.org/wiki/Knight_Capital_Group Doesn't matter if they're so fast they can't lose on any single trade, there's always a risk of shooting themselves in the foot.
qaz_plm 2y ago
https://archive.ph/umAb7 https://archive.ph/umAb7
deleted 2y ago
[deleted]
temp0826 2y ago
> Wall Street trading desks have benefited in the past four years from large market swings around the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine and the decision by central banks to lift interest rates amid stubborn inflation. So...by capitalizing on tragedy? (I know it's nothing new, it just makes me a little sad)
- sokoloff 2y ago
  Capitalizing on volatility and change. A lot of that change happens to be negative, but they’re generally not specifically targeting any direction.
  - caddemon 2y ago
    I mean negative moves tend to be more volatile than positive ones, but yeah I don't think "capitalizing on tragedy" is the right way to frame it. Financial conditions during bad news events would turn out worse if there weren't these market makers providing liquidity. Some pharma companies profited from COVID but it was because of valuable services provided. If they didn't "capitalize on the tragedy" we'd have a bigger problem lol.
mitchbob 2y ago
Am I wrong in saying that high-speed trading does nothing to make the world a better place, and simply sucks up hardware, infrastructure, and talent to enrich a handful of people? If not, how about a per-transaction tax on securities trades, one that wouldn't be out of line for individual investors, but would extract considerable funds from HSTs that could be used for things that will make the world a better place?
- ivanjermakov 2y ago
  How would you stop a broker, e.g. bank, that holds a high volume of securities and provides HST access for a fee smaller than the market itself?
- t0mas88 2y ago
  Not entirely "nothing", as a result of HFT market making all participants are getting smaller spreads and increased liquidity. However... That has huge diminishing returns. The first few steps to electronic markets and fast market makers dropped the spread considerably (making trading cheaper for everyone), all the steps that came after cost a lot more and didn't really improve things much. So they're not adding a lot now relative to the cost and complexity. But banning the whole practice will make the markets function much worse and more expensive for everyone.
  - mrcode007 2y ago
    The only agent the spread matters to is the HFT and a market maker so it’s a circular reasoning. Similar for liquidity provision; most of the optimal control theory solutions for market making with alpha signal will widen the spread and remove liquidity the moment they sense something is off.
    - bryanlarsen 2y ago
      If I buy a stock and sell it three years later, my profit is reduced by the spread. If the spread is 5% that might be a significant portion of my profit.
t0mas88 2y ago
Jane Street has a tech podcast that's worth listening: https://open.spotify.com/show/3ig6FgIbASpqJbc9chD2CI?si=etXY3u-mRl2KtCyKZGcvkg https://open.spotify.com/show/3ig6FgIbASpqJbc9chD2CI?si=etXY... The episodes on compiler optimization, time keeping and multicast are specifically interesting if you want to know more about the oddities of high frequency trading.
wslh 2y ago
I think it is interesting to read about sound initiatives against HFT: https://www.ft.com/content/4906c3a2-5ac3-11e4-8625-00144feab7de https://www.ft.com/content/4906c3a2-5ac3-11e4-8625-00144feab... and papers like https://publications.gc.ca/site/archivee-archived.html?url=https://publications.gc.ca/collections/collection_2014/banque-bank-canada/FB3-2-114-19-eng.pdf https://publications.gc.ca/site/archivee-archived.html?url=h... Here I am not arguing against HFT per se but it is a interesting topic and being critical is a good way to learn.
bumbledraven 2y ago
Related, from earlier this month (https://www.bloomberg.com/news/articles/2024-04-12/jane-street-accuses-millennium-ex-traders-of-stealing-strategy https://www.bloomberg.com/news/articles/2024-04-12/jane-stre...): > Jane Street Group sued Millennium Management and two former traders over their alleged theft of a highly confidential and “immensely valuable” proprietary trading strategy. Here's the complaint: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rEXVjFfBUnn4/v0 https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rEXVjFfB...
streblo 2y ago
Am I correct in understanding how firms like Jane Street work? They are a market maker - they run an exchange where buyers and sellers can transact. They can arbitrage these trades by connecting buyers and sellers where there is a price discrepancy. Something like that?
- TaylorPhebillo 2y ago
  Almost always outside of crypto, the market makers and exchanges are different entities. Exchanges maintain order books- who is willing to buy or sell what, at what prices, plus a lot of rules about tie breaking, order visibility, "implied" prices (e.g. sometimes the combination of two products is logically equivalent to a third), etc. When orders "cross"- that is, someone is offering to buy at a price at least as good as someone is willing to sell for, the exchanges matches those participants and they are considered to have traded (though for a mix of technical and regulatory reasons, the trade actually settles two days later) Market makers generally maintain offers to both buy and sell a product, generally ~all the time the market is open. For example, they might offer to buy up to 30 X for $0.99 or sell up to 70 for $1.01. If small buy and sell orders come in more or less randomly, the market maker will sell about as many X as they buy, for (1.01 - 0.99) a profit of 2c for each set of orders. The trick for a market maker is to offer the best price, so that they get any orders at all, while accounting for the risk that the person buying or selling from them (the liquidity taker) isn't just a random order, but is either market moving or correctly predicting the market is about to move- e.g. a market maker offering to buy a million shares of a X at $0.99 will lose a lot of money to someone who correctly predicted X is about to go to $0.70, and took them up on the full offer.
  - hnbear 2y ago
    The same in crypto too. The big exchanges function much like a traditional exchange and Jane St, Virtu, etc all connect the same way (FIX) to make the market. Really crypto exchanges are just like FX markets. Very little difference. They light also be mining, but market making behaves the same as other traditional markets.
deleted 2y ago
[deleted]
fspeech 2y ago
The angst against HFTs is odd, as their revenue come from market growth and taking shares away from traditional Wall Street investment banks. Things like ETFs, that most people seem to be positive about, depend on market makers to work. Without HFTs, people just pay more spreads for the same transactions. HFTs are a mirror of the world we live in, not the cause of it.

28 points by bblcla 2y ago

ametrau 2y ago

Aren’t these basically risk free trades?

givemeethekeys 2y ago
Yes, as long as your system is faster than the next guy.
TaylorPhebillo 2y ago
Occasionally but pretty rarely. By the time a trade has become actually risk free, as in "I can instantly buy X here and sell X there and make a profit", someone will have realized that and done the trade when it was almost risk free- the that the price is likely but not guaranteed to go up there- and made the trade first.
RhysU 2y ago
No, as operational risk can quickly sink such companies: https://en.m.wikipedia.org/wiki/Knight_Capital_Group https://en.m.wikipedia.org/wiki/Knight_Capital_Group Doesn't matter if they're so fast they can't lose on any single trade, there's always a risk of shooting themselves in the foot.

qaz_plm 2y ago

https://archive.ph/umAb7 https://archive.ph/umAb7

deleted 2y ago

[deleted]

temp0826 2y ago

> Wall Street trading desks have benefited in the past four years from large market swings around the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine and the decision by central banks to lift interest rates amid stubborn inflation. So...by capitalizing on tragedy? (I know it's nothing new, it just makes me a little sad)

sokoloff 2y ago
Capitalizing on volatility and change. A lot of that change happens to be negative, but they’re generally not specifically targeting any direction.
- caddemon 2y ago
  I mean negative moves tend to be more volatile than positive ones, but yeah I don't think "capitalizing on tragedy" is the right way to frame it. Financial conditions during bad news events would turn out worse if there weren't these market makers providing liquidity. Some pharma companies profited from COVID but it was because of valuable services provided. If they didn't "capitalize on the tragedy" we'd have a bigger problem lol.

mitchbob 2y ago

Am I wrong in saying that high-speed trading does nothing to make the world a better place, and simply sucks up hardware, infrastructure, and talent to enrich a handful of people? If not, how about a per-transaction tax on securities trades, one that wouldn't be out of line for individual investors, but would extract considerable funds from HSTs that could be used for things that will make the world a better place?

ivanjermakov 2y ago
How would you stop a broker, e.g. bank, that holds a high volume of securities and provides HST access for a fee smaller than the market itself?
t0mas88 2y ago
Not entirely "nothing", as a result of HFT market making all participants are getting smaller spreads and increased liquidity. However... That has huge diminishing returns. The first few steps to electronic markets and fast market makers dropped the spread considerably (making trading cheaper for everyone), all the steps that came after cost a lot more and didn't really improve things much. So they're not adding a lot now relative to the cost and complexity. But banning the whole practice will make the markets function much worse and more expensive for everyone.
- mrcode007 2y ago
  The only agent the spread matters to is the HFT and a market maker so it’s a circular reasoning. Similar for liquidity provision; most of the optimal control theory solutions for market making with alpha signal will widen the spread and remove liquidity the moment they sense something is off.
  - bryanlarsen 2y ago
    If I buy a stock and sell it three years later, my profit is reduced by the spread. If the spread is 5% that might be a significant portion of my profit.

t0mas88 2y ago

Jane Street has a tech podcast that's worth listening: https://open.spotify.com/show/3ig6FgIbASpqJbc9chD2CI?si=etXY3u-mRl2KtCyKZGcvkg https://open.spotify.com/show/3ig6FgIbASpqJbc9chD2CI?si=etXY... The episodes on compiler optimization, time keeping and multicast are specifically interesting if you want to know more about the oddities of high frequency trading.

wslh 2y ago

I think it is interesting to read about sound initiatives against HFT: https://www.ft.com/content/4906c3a2-5ac3-11e4-8625-00144feab7de https://www.ft.com/content/4906c3a2-5ac3-11e4-8625-00144feab... and papers like https://publications.gc.ca/site/archivee-archived.html?url=https://publications.gc.ca/collections/collection_2014/banque-bank-canada/FB3-2-114-19-eng.pdf https://publications.gc.ca/site/archivee-archived.html?url=h... Here I am not arguing against HFT per se but it is a interesting topic and being critical is a good way to learn.

bumbledraven 2y ago

Related, from earlier this month (https://www.bloomberg.com/news/articles/2024-04-12/jane-street-accuses-millennium-ex-traders-of-stealing-strategy https://www.bloomberg.com/news/articles/2024-04-12/jane-stre...): > Jane Street Group sued Millennium Management and two former traders over their alleged theft of a highly confidential and “immensely valuable” proprietary trading strategy. Here's the complaint: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rEXVjFfBUnn4/v0 https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rEXVjFfB...

streblo 2y ago

Am I correct in understanding how firms like Jane Street work? They are a market maker - they run an exchange where buyers and sellers can transact. They can arbitrage these trades by connecting buyers and sellers where there is a price discrepancy. Something like that?

TaylorPhebillo 2y ago
Almost always outside of crypto, the market makers and exchanges are different entities. Exchanges maintain order books- who is willing to buy or sell what, at what prices, plus a lot of rules about tie breaking, order visibility, "implied" prices (e.g. sometimes the combination of two products is logically equivalent to a third), etc. When orders "cross"- that is, someone is offering to buy at a price at least as good as someone is willing to sell for, the exchanges matches those participants and they are considered to have traded (though for a mix of technical and regulatory reasons, the trade actually settles two days later) Market makers generally maintain offers to both buy and sell a product, generally ~all the time the market is open. For example, they might offer to buy up to 30 X for $0.99 or sell up to 70 for $1.01. If small buy and sell orders come in more or less randomly, the market maker will sell about as many X as they buy, for (1.01 - 0.99) a profit of 2c for each set of orders. The trick for a market maker is to offer the best price, so that they get any orders at all, while accounting for the risk that the person buying or selling from them (the liquidity taker) isn't just a random order, but is either market moving or correctly predicting the market is about to move- e.g. a market maker offering to buy a million shares of a X at $0.99 will lose a lot of money to someone who correctly predicted X is about to go to $0.70, and took them up on the full offer.
- hnbear 2y ago
  The same in crypto too. The big exchanges function much like a traditional exchange and Jane St, Virtu, etc all connect the same way (FIX) to make the market. Really crypto exchanges are just like FX markets. Very little difference. They light also be mining, but market making behaves the same as other traditional markets.

deleted 2y ago

[deleted]

fspeech 2y ago

The angst against HFTs is odd, as their revenue come from market growth and taking shares away from traditional Wall Street investment banks. Things like ETFs, that most people seem to be positive about, depend on market makers to work. Without HFTs, people just pay more spreads for the same transactions. HFTs are a mirror of the world we live in, not the cause of it.