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> Jane Street is stupidly profitable — net trading revenues of $4.4bn in the first quarter, after a $10.5bn haul in 2023, and a profit margin north of 70 per c

> Jane Street is stupidly profitable — net trading revenues of $4.4bn in the first quarter, after a $10.5bn haul in 2023, and a profit margin north of 70 per cent — but it bears repeating. That is the fourth straight year of net trading revenues exceeding $10bn. Gross revenues came at a record $21.9bn in 2023, up 34 per cent from 2022. Yes, I suppose this is all something to get all starry-eyed over, Jane Street encroaching on Citadel Securities, the two of whom control 30% of the US equity market volume. I see it another way. I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. And not just in the US, globally. This won't stop at 30% of the US equity market. It won't stop until the music stops and the last chair breaks. Which may or may not be soon. It will certainly be coming at some point. Five times the London Stock Exchange’s entire trading volumes in 2023 in just your ETF arm? Sure ... this sounds like reasonable growth ... > This is why some people argue that APs like Jane Street have become systemically important. Oh, you don't say! > About 80 per cent of the company’s capital comes from employee equity That's adorable. They're like a little mom-and-pop shop ... except not anything like that.

hackerlight 2y ago
Ignorance leads to the assumption a piece of economic activity is zero sum. You see it everywhere
pas 2y ago
> I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. can you expand on this? I have zero idea of what Jane street actually does and how they actually make money. (someone wrote that they have ~450 traders. trading what? equity? stocks? dark pools? PE? are they market makers? are they offering services to institution types?) also what does "people's hard earned money" mean? you mean that Jane Street takes away their 401k or ... ?
- zie 2y ago
  They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread). We could essentially close them down if we moved all trading to say 1 hour a day.
  - pas 2y ago
    regular buyers/sellers can use limit orders, no? speculators can then sell/buy to/from them and if they are doing it well, they make a profit. (and help narrow the spread.) sure, great, they even inject some liquidity. but why do we want a narrow spread? it only helps people who don't know which side of the trade they would rather be on, no?
    - cityofdelusion 2y ago
      The bid/ask spread is never good, as it is a fixed transaction cost no matter what side you play. In fact, the equity under consideration has to move greater than the spread to even realize a profit -- with the spread, you are always "buying high, selling low". With very narrow spreads, the spread is only a few cents at most and this consideration evaporates. The spread also compounds quickly. A wide spread indicates low volume and a sparse order book. This means if you need to offload even say 100 shares, you can single-handedly as a retail investor, widen the spread yourself and take an even larger loss. Liquidity injects supply/demand and its always a good thing for retail investors. It goes past the stock market as well, spreads are why pawn shops, thrift stores, and even eBay can be profitable in certain goods and with other goods, not so much.
    - zie 2y ago
      I agree with @cityofdelusion's comment. You can absolutely set limit orders, but depending on the limit, other people may or may not be willing to trade with you. Your order can sit all day and never be accepted. If I want to sell AAPL, and set the limit oder to $1/share, buyers would take that trade instantly. But if I set the limit order to $10k/share, nobody would buy from me. The exact same thing happens with the buy side. It's like haggling with the vendor on the street corner or negotiating with your car dealer. Think of it like a liquidity tax. Jane Street and other market makers(Citadel, etc) compete over that liquidity tax. The more often a fund, ETF or stock is traded, the lower the liquidity tax. If XYZ Corp is very illiquid and only trades a few shares a month, then Jane Street will charge you a lot of tax to allow you to trade it instantly, because they have a harder time knowing what they can get for it a month from now when someone actually wants the trade. You can see the wide range of bid/ask spreads for ETF's here: https://www.etf.com/sections/news/etfs-highest-lowest-trading-spreads https://www.etf.com/sections/news/etfs-highest-lowest-tradin... Notice something like SPY(S&P 500 fund) is basically free to trade, but something like EEH costs you a very pretty penny to instantly trade. For EEH, you might be better off re-issuing limit orders and just hoping someone comes along that wants that fund. If you let Jane Street or other market makers handle the trade, they will charge you more than it's worth to trade.
clusterhacks 2y ago
That sounds interesting. Are there easy sources for seeing what companies drive US equity market volume? My google-fu failed me but maybe I am missing something specific in the fintech industry that tracks that kind of thing . . .
- Galanwe 2y ago
  > Are there easy sources for seeing what companies drive US equity market volume? No. Flow data is quite expensive, and most providers will only provide bucketed data unless you contribute with your own flows. OP obviously has no idea what he's talking about but hey, what wouldnt you do for some internet points.
zie 2y ago
They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread). We could essentially close them down if we moved all trading to say 1 hour a day. Though most retail traders are upset they can only trade 7.5hrs a day, they want to trade 24/7 instead. They seem to WANT the liquidity and are apparently willing to pay for it. Me, I'm fine with trading for only an hour a day, but I get not everyone is as lackadaisical as me. Unless you have a better mouse trap to solve the liquidity problem, this is the best we have for now.
- EMM_386 2y ago
  > They provide market liquidity. I actually know a little about this space. You know what the easiest response is that is always the answer? "We provide liquidity". Sounds important, most people don't get it, it works. But it's not like the market is going to grind to a halt if Jane Street disappears overnight. Of course, people will say that. Not people telling you the truth. I actually considered "but, but, THE LIQUIDITY!" in my answer but I felt there was sufficient snark.
  - zie 2y ago
    Agreed, orders maybe wouldn't fill quite as fast, but it's not like markets would fall over and die.
    - alchemist1e9 2y ago
      Yes they would. It would be a significant and catastrophic mistake to restrict trading based on feelings of envy. It would be technically negative in every measurement possible. So many poor policies originate from Envy and poor reasoning not grounded in logic and understanding of free markets and economics. This would be yet another classic example of that.
      - 2y ago
andrepd 2y ago
I do agree with you. It's neither sustainable not really desirable, the amount of effort and resources and smart people dedicated to the financial sector.
- alchemist1e9 2y ago
  Less smart people are employed by the financial sector than in the past and less will be in the future.
  - caddemon 2y ago
    Than in the past? That seems untrue at face, do you have a source? Firms like JS recruit a lot of people that wouldn't have ever considered a traditional finance institution in any event.
alchemist1e9 2y ago
> I see it another way. I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. And not just in the US, globally. This won't stop at 30% of the US equity market. It won't stop until the music stops and the last chair breaks. Which may or may not be soon. It will certainly be coming at some point. Envious bullshit! The reason they are so profitable is that believe it or not they are replacing earlier operators who were less efficient and taking more transactions costs out of the system before. To be anti-Jane Street is the same as being pro-Big Bank of the past, that was taking more money out of the economy doing a worse job! Unless you know the history of global financial markets and lived it then you don’t understand. For example in the late 80s the CBOT treasury bond bit had over 1000 traders in that pit. They were all making money and quite a few a huge amount. And there was many more people supporting those traders of the floor. That was just a single futures bond contract! With Jane Street we have 2,631 employees doing the equivalent job globally and for less total cost of at least 80,000 employees in late 80s. The profits per employee are higher obviously but that’s the effect of technology and productivity but the total price being charged to the economy as a whole is much lower. This trend will continue and I would not be surprised in 10 years that a company of 200 people will provide the entire function of those 2600 today, and probably the profits per employee will be $10M per person. But that’s what we want, is a good thing not bad, portraying otherwise is just Envy.
- EMM_386 2y ago
  > Envious bullshit! No, no ... it's not. First of all I don't care one iota about Jane Street or how much money Jane Street employees make. The problem is that this money has to come from somewhere. And while you say it's due to the entire system becoming more efficient, that's not the full story. That $1 billion Indian options play came at the expense of Indian retail investors. So yes, there is a siphoning of money out of the hands of the retail investors and into the vast pool growing under Jane Street and its employees, much as it has done under others like Citadel. Who is that good for, except Jane Street? If you look the per capita income from where it's leaving to where it's going, that's where I see a growing problem. There may be a sucker born every minute, but that doesn't mean that this is all just about making markets more efficient. And, of course, none of this would have been possible without the additional "liquidity" provided ... the clearly essential contribution that makes it all justified. "We provide liquidity!". Ok ... ? There's some efficiency improvements too, but ... eh.

hackerlight 2y ago

Ignorance leads to the assumption a piece of economic activity is zero sum. You see it everywhere

pas 2y ago

> I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. can you expand on this? I have zero idea of what Jane street actually does and how they actually make money. (someone wrote that they have ~450 traders. trading what? equity? stocks? dark pools? PE? are they market makers? are they offering services to institution types?) also what does "people's hard earned money" mean? you mean that Jane Street takes away their 401k or ... ?

zie 2y ago
They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread). We could essentially close them down if we moved all trading to say 1 hour a day.
- pas 2y ago
  regular buyers/sellers can use limit orders, no? speculators can then sell/buy to/from them and if they are doing it well, they make a profit. (and help narrow the spread.) sure, great, they even inject some liquidity. but why do we want a narrow spread? it only helps people who don't know which side of the trade they would rather be on, no?
  - cityofdelusion 2y ago
    The bid/ask spread is never good, as it is a fixed transaction cost no matter what side you play. In fact, the equity under consideration has to move greater than the spread to even realize a profit -- with the spread, you are always "buying high, selling low". With very narrow spreads, the spread is only a few cents at most and this consideration evaporates. The spread also compounds quickly. A wide spread indicates low volume and a sparse order book. This means if you need to offload even say 100 shares, you can single-handedly as a retail investor, widen the spread yourself and take an even larger loss. Liquidity injects supply/demand and its always a good thing for retail investors. It goes past the stock market as well, spreads are why pawn shops, thrift stores, and even eBay can be profitable in certain goods and with other goods, not so much.
  - zie 2y ago
    I agree with @cityofdelusion's comment. You can absolutely set limit orders, but depending on the limit, other people may or may not be willing to trade with you. Your order can sit all day and never be accepted. If I want to sell AAPL, and set the limit oder to $1/share, buyers would take that trade instantly. But if I set the limit order to $10k/share, nobody would buy from me. The exact same thing happens with the buy side. It's like haggling with the vendor on the street corner or negotiating with your car dealer. Think of it like a liquidity tax. Jane Street and other market makers(Citadel, etc) compete over that liquidity tax. The more often a fund, ETF or stock is traded, the lower the liquidity tax. If XYZ Corp is very illiquid and only trades a few shares a month, then Jane Street will charge you a lot of tax to allow you to trade it instantly, because they have a harder time knowing what they can get for it a month from now when someone actually wants the trade. You can see the wide range of bid/ask spreads for ETF's here: https://www.etf.com/sections/news/etfs-highest-lowest-trading-spreads https://www.etf.com/sections/news/etfs-highest-lowest-tradin... Notice something like SPY(S&P 500 fund) is basically free to trade, but something like EEH costs you a very pretty penny to instantly trade. For EEH, you might be better off re-issuing limit orders and just hoping someone comes along that wants that fund. If you let Jane Street or other market makers handle the trade, they will charge you more than it's worth to trade.

clusterhacks 2y ago

That sounds interesting. Are there easy sources for seeing what companies drive US equity market volume? My google-fu failed me but maybe I am missing something specific in the fintech industry that tracks that kind of thing . . .

Galanwe 2y ago
> Are there easy sources for seeing what companies drive US equity market volume? No. Flow data is quite expensive, and most providers will only provide bucketed data unless you contribute with your own flows. OP obviously has no idea what he's talking about but hey, what wouldnt you do for some internet points.

zie 2y ago

They provide market liquidity. The chances that a seller and buyer come together at the exact same time across the 7.5 hours of open market operations is fairly low, so they buy from sellers and sell to buyers and hold in between to keep the markets liquid. This liquidity costs(often advertised as the bid/ask spread). We could essentially close them down if we moved all trading to say 1 hour a day. Though most retail traders are upset they can only trade 7.5hrs a day, they want to trade 24/7 instead. They seem to WANT the liquidity and are apparently willing to pay for it. Me, I'm fine with trading for only an hour a day, but I get not everyone is as lackadaisical as me. Unless you have a better mouse trap to solve the liquidity problem, this is the best we have for now.

EMM_386 2y ago
> They provide market liquidity. I actually know a little about this space. You know what the easiest response is that is always the answer? "We provide liquidity". Sounds important, most people don't get it, it works. But it's not like the market is going to grind to a halt if Jane Street disappears overnight. Of course, people will say that. Not people telling you the truth. I actually considered "but, but, THE LIQUIDITY!" in my answer but I felt there was sufficient snark.
- zie 2y ago
  Agreed, orders maybe wouldn't fill quite as fast, but it's not like markets would fall over and die.
  - alchemist1e9 2y ago
    Yes they would. It would be a significant and catastrophic mistake to restrict trading based on feelings of envy. It would be technically negative in every measurement possible. So many poor policies originate from Envy and poor reasoning not grounded in logic and understanding of free markets and economics. This would be yet another classic example of that.
    - 2y ago

andrepd 2y ago

I do agree with you. It's neither sustainable not really desirable, the amount of effort and resources and smart people dedicated to the financial sector.

alchemist1e9 2y ago
Less smart people are employed by the financial sector than in the past and less will be in the future.
- caddemon 2y ago
  Than in the past? That seems untrue at face, do you have a source? Firms like JS recruit a lot of people that wouldn't have ever considered a traditional finance institution in any event.

alchemist1e9 2y ago

> I see it another way. I see people's hard earned money being siphoned by enormous financially-engineered vacuums, never to be seen again. And not just in the US, globally. This won't stop at 30% of the US equity market. It won't stop until the music stops and the last chair breaks. Which may or may not be soon. It will certainly be coming at some point. Envious bullshit! The reason they are so profitable is that believe it or not they are replacing earlier operators who were less efficient and taking more transactions costs out of the system before. To be anti-Jane Street is the same as being pro-Big Bank of the past, that was taking more money out of the economy doing a worse job! Unless you know the history of global financial markets and lived it then you don’t understand. For example in the late 80s the CBOT treasury bond bit had over 1000 traders in that pit. They were all making money and quite a few a huge amount. And there was many more people supporting those traders of the floor. That was just a single futures bond contract! With Jane Street we have 2,631 employees doing the equivalent job globally and for less total cost of at least 80,000 employees in late 80s. The profits per employee are higher obviously but that’s the effect of technology and productivity but the total price being charged to the economy as a whole is much lower. This trend will continue and I would not be surprised in 10 years that a company of 200 people will provide the entire function of those 2600 today, and probably the profits per employee will be $10M per person. But that’s what we want, is a good thing not bad, portraying otherwise is just Envy.

EMM_386 2y ago
> Envious bullshit! No, no ... it's not. First of all I don't care one iota about Jane Street or how much money Jane Street employees make. The problem is that this money has to come from somewhere. And while you say it's due to the entire system becoming more efficient, that's not the full story. That $1 billion Indian options play came at the expense of Indian retail investors. So yes, there is a siphoning of money out of the hands of the retail investors and into the vast pool growing under Jane Street and its employees, much as it has done under others like Citadel. Who is that good for, except Jane Street? If you look the per capita income from where it's leaving to where it's going, that's where I see a growing problem. There may be a sucker born every minute, but that doesn't mean that this is all just about making markets more efficient. And, of course, none of this would have been possible without the additional "liquidity" provided ... the clearly essential contribution that makes it all justified. "We provide liquidity!". Ok ... ? There's some efficiency improvements too, but ... eh.