I was curious what kind of company needed to develop all these different kinds of advanced tech. Turns out it's just so they can be sneaky and trade shares quickly. Kind of sad IMO.
Agreed. Amongst the top 5% smartest quantitatively-minded kids I knew in college, I’d say ~25% of them ended up at quant shops like Jane Street, sometimes straight out of school, sometimes after doing a PhD.
I can only imagine what good that brainpower could do for humanity if it weren’t occupied finding cleverer ways to manipulate electronic money.
Apologies for a (mild) thread-jack. My opinion, one problem with our economic system is focus on short-term results, to the point that several notable companies' stock prices are completely divorced from the reality of their performance. This makes sense if the stock market is primarily a device for gambling or extracting wealth. Investors care less about the prospects of the company than the prospects of the market. I suspect this can trickle all the way down: Board -> CEO -> managers -> individual contributors, all given goals intended to pump the stock short-term, rather than build long-term results.
How do we start to care about quality, building lasting things, fundamentals? What would happen if we taxed capital gains at 100% for the first, I don't know, 3 / 6 / 9 months of holding an asset? Maybe investors would have more incentive to care about fundamentals?
Anyway, I assume I'm wrong about all of this, just looking for someone to explain why. ;-)
Thing is, there's very few problems that don't involve money or making money that can be solved with software. Even laudable projects like green energy are ultimately capitalist endeavours, since nobody will build solar panels etc for free.
Thinking that these kids would be solving meaningful societal problems if they were not working on HFT is delusional at best. To be able to tackle hard problems and make any meaningful impact you have to be very passionate about the problem that you are researching/trying-to-solve, and no amount of money is going to make this passion materialize when it's just not some of it inside you already. Now don't get me wrong I'm sure these people are really smart and I would be even willing to bet that the distribution of IQ at Jane Street is tighter than many top research labs even when the latter group produces more tech and accolades than the former; raw intelligence is not the only ingredient of world changing minds.
At the end of the day I believe that if CS/finance was not "cool" and paid the way it does (specially at the level of HFT) most of those kids currently there would go back to the good old law/medicine...
Basically, SEBI investigated Jane Street's trading on January 17, 2024, when the firm allegedly made about $86 million in a single day through what regulators term "intra-day index manipulation."
HFT and Ads are two places which (currently) print money, so it vacuums up all the talent, and puts it to use growing their already-huge revenue streams.
Companies like JaneStreet, 2Sigma, etc employ some of the best software engineers, mathematicians, physicists and what not just so they can
- have better weather forecasts to identify whether a 1 degree delta in South CA can increase oil costs cents on the barrel,
- run pandemic simulations to identify how the spread might happen and where inflation will rise so they move faster,
- track occupancy rates for pharmacies, hotels, casinos, etc via satellite imaging to identify spikes in usage,
- track the tiniest of things like butterfly populations to identify increase in earnings for certain brands of hotels,
- build some of the most efficient software and write their own compilers
all so that they can move money around [and do so quickly].
Finance is not alone either. A non-trivial amount of big tech is on tracking users and serving ads better.
Do I blame the engineers? No.
I am just lamenting the state of society since this is how we have the brightest among us function and work.
I can construct even more compelling arguments for the uselessness or active harmfulness of most tech jobs.
The only "actually useful" tech jobs if we're going to consistently apply a bar that excludes finance would be stuff like aerospace R&D or ERM systems. Which, to be clear, I would love if society incentivized more strongly. But finance is hardly the worst offender here.
Can someone who actually understands the topic explain to me (or link good resources) why/if what they do is useful to anyone?
Or are they literally just in the business of making money?
(anyone except themselves of course. I'm serious, any hints of irony are unintended)
It's a common rhetoric from someone who has no clue about financial markets (the person you replied to).
Suppose you want to invest in S&p500 so you want to buy the ETF. Someone like Jane Street can create sell you this ETF, and take care of the risk that comes along with it. For example, the price they sell you this ETF should take into account the pricing of underlying stocks. While it sounds trivial, doing this profitably (and therefore sustainably) is a tough job. And doing it competitively to offer you a good price on it is an even tougher job.
> Or are they literally just in the business of making money?
All for-profit businesses can be viewed abstractly as “in the business of making money”, so this doesn’t really distinguish Jane Street in any way.
> … why/if what they do is useful to anyone?
The utility that Jane Street provides is to the be a persistent buyer and seller of equities. Basically you can call them at any time and buy shares or sell shares. Most shareholders do not trade very often so without a “market maker” like Jane Street it can be a lot of work finding a buyer/seller who is willing to trade on your schedule at the current market price. You’ll have to pay them extra to convince them to trade, which makes it harder to trade profitably. Jane Street significantly lowers the price and makes trading easier (“provides liquidity to the market”).
the premise here is that market makers and arbitrageurs are crucial for efficiently allocating capital. enabling sellers to sell to the highest bidder and buyers to buy from the cheapest vendor means less capital wasted(?)
in my experience Jane Street make no attempt to defend the financial system; such societal benefits are obvious or implicit.
whether you (or they!) really buy that is irrelevant
I used to work there, so with the appropriate deference to that Upton Sinclair quote about paychecks:
Market makers like JS vastly increase market liquidity across all sectors, which is required for modern high-efficiency economies to work. McDonalds prices are possible because there's enough liquidity in corn futures.
More abstractly, high market liquidity corresponds to higher-confidence information about the future, which hedge funds generate (and distribute for a low fee via markets), allowing for more impressive planning ahead.
Also, you know how when you buy stocks it doesn't cost you anything and you often get better-than-public-book execution prices? That didn't happen prior to modern electronic market makers. Multiply that efficiency gain by umpteen trades every day.
In general, "being in the business of making money" inherently requires you to do something useful to get paid, to the extent you're not just abusing a principle agent problem or something. The most credible argument for hedge funds making money without doing something useful is that they're doing cantillon effect harvesting or something. I think that's pretty small overall.
HFTs competing with each other at market making lower spreads; the cost retailers/institutions need to pay to enter a position. Prior to algorithmic trading, you might need to pay a whole percentage point or more (100 basis points), now spreads on the most popular products are so tightly quoted that it can cost less than 1 basis point (0.01%) to enter a position.
- Money (the concept) is useful to society as a store of value, so you don't have to waste effort bartering for things.
- Adding on to that, credit is useful to society since it lets humanity even more efficiently allocate its good and labor (stored as money).
- Finally, stocks, insurance, and other financial instruments are additional advanced developments on top of credit, where groups of humans (companies) can take on even more risky endeavors supported by investors or insurers.
So my view is companies like Jane Street facilitate these complicated value transfers, to let (e.g.) a spaceship company draw on resources generated by growing crops, selling shoes, giving haircuts, etc via a convoluted path through stocks, ETFs, whatever.
Market makers or other similar HFT are providing liquidity in an efficient manner to the markets. The benefit is often debated but for the majority of retail and institutional investors, spreads have never been lower. Instead of a guy at the floor swallowing large margins up, you have bots electronically vacuuming pennies.
Of course the whole point for a firm like Jane Street is to make money. To make money means they are competing with someone and that someone could be a loser depending on the scenario.
My own opinion, most folks don’t like market makers or folks who work in financial markets are simply not well informed. The efficient allocation of capital is a valuable service to humans in a capitalist society. People often forget how wide spreads were in the past and that humans were swallowing that margin up with little competition. Now market making is highly competitive and because of it investors both small and large benefit from it.
Plenty people of here work doing basically the same to maximize the amount of time people, including children and teens, spend staring at rectangular lights to show them ads.
Some amount of extremely competent engineers worked on the tech that made it possible to target beauty ads to insecure teen girls when they deleted a selfie.
Some amount of extremely competent engineers where complicit in building the tech that stoked the fire under the Rohingya genocide.
MontyCarloHall|6 months ago
I can only imagine what good that brainpower could do for humanity if it weren’t occupied finding cleverer ways to manipulate electronic money.
dude250711|6 months ago
Maybe humanity can start paying them decent money first?
techdmn|6 months ago
How do we start to care about quality, building lasting things, fundamentals? What would happen if we taxed capital gains at 100% for the first, I don't know, 3 / 6 / 9 months of holding an asset? Maybe investors would have more incentive to care about fundamentals?
Anyway, I assume I'm wrong about all of this, just looking for someone to explain why. ;-)
smokel|6 months ago
siva7|6 months ago
Cthulhu_|6 months ago
unabirra|6 months ago
At the end of the day I believe that if CS/finance was not "cool" and paid the way it does (specially at the level of HFT) most of those kids currently there would go back to the good old law/medicine...
disqard|6 months ago
https://www.bbc.com/news/articles/c5y0zgrevl1o
Basically, SEBI investigated Jane Street's trading on January 17, 2024, when the firm allegedly made about $86 million in a single day through what regulators term "intra-day index manipulation."
HFT and Ads are two places which (currently) print money, so it vacuums up all the talent, and puts it to use growing their already-huge revenue streams.
PartiallyTyped|6 months ago
Companies like JaneStreet, 2Sigma, etc employ some of the best software engineers, mathematicians, physicists and what not just so they can
all so that they can move money around [and do so quickly].Finance is not alone either. A non-trivial amount of big tech is on tracking users and serving ads better.
Do I blame the engineers? No.
I am just lamenting the state of society since this is how we have the brightest among us function and work.
wyager|6 months ago
The only "actually useful" tech jobs if we're going to consistently apply a bar that excludes finance would be stuff like aerospace R&D or ERM systems. Which, to be clear, I would love if society incentivized more strongly. But finance is hardly the worst offender here.
PartiallyTyped|6 months ago
Once you start noticing things changing, try to identify how you could profit off of it. If it's a change, then there's profit to be made somehow.
Any anecdote is a potential lead.
infecto|6 months ago
plst|6 months ago
doovd|6 months ago
Suppose you want to invest in S&p500 so you want to buy the ETF. Someone like Jane Street can create sell you this ETF, and take care of the risk that comes along with it. For example, the price they sell you this ETF should take into account the pricing of underlying stocks. While it sounds trivial, doing this profitably (and therefore sustainably) is a tough job. And doing it competitively to offer you a good price on it is an even tougher job.
jt2190|6 months ago
All for-profit businesses can be viewed abstractly as “in the business of making money”, so this doesn’t really distinguish Jane Street in any way.
> … why/if what they do is useful to anyone?
The utility that Jane Street provides is to the be a persistent buyer and seller of equities. Basically you can call them at any time and buy shares or sell shares. Most shareholders do not trade very often so without a “market maker” like Jane Street it can be a lot of work finding a buyer/seller who is willing to trade on your schedule at the current market price. You’ll have to pay them extra to convince them to trade, which makes it harder to trade profitably. Jane Street significantly lowers the price and makes trading easier (“provides liquidity to the market”).
dn97|6 months ago
in my experience Jane Street make no attempt to defend the financial system; such societal benefits are obvious or implicit.
whether you (or they!) really buy that is irrelevant
wyager|6 months ago
Market makers like JS vastly increase market liquidity across all sectors, which is required for modern high-efficiency economies to work. McDonalds prices are possible because there's enough liquidity in corn futures.
More abstractly, high market liquidity corresponds to higher-confidence information about the future, which hedge funds generate (and distribute for a low fee via markets), allowing for more impressive planning ahead.
Also, you know how when you buy stocks it doesn't cost you anything and you often get better-than-public-book execution prices? That didn't happen prior to modern electronic market makers. Multiply that efficiency gain by umpteen trades every day.
In general, "being in the business of making money" inherently requires you to do something useful to get paid, to the extent you're not just abusing a principle agent problem or something. The most credible argument for hedge funds making money without doing something useful is that they're doing cantillon effect harvesting or something. I think that's pretty small overall.
pedroza_alex|6 months ago
In turn that leads to more efficient markets since prices converge to their "correct" value faster.
logicchains|6 months ago
marklar423|6 months ago
- Money (the concept) is useful to society as a store of value, so you don't have to waste effort bartering for things.
- Adding on to that, credit is useful to society since it lets humanity even more efficiently allocate its good and labor (stored as money).
- Finally, stocks, insurance, and other financial instruments are additional advanced developments on top of credit, where groups of humans (companies) can take on even more risky endeavors supported by investors or insurers.
So my view is companies like Jane Street facilitate these complicated value transfers, to let (e.g.) a spaceship company draw on resources generated by growing crops, selling shoes, giving haircuts, etc via a convoluted path through stocks, ETFs, whatever.
infecto|6 months ago
Of course the whole point for a firm like Jane Street is to make money. To make money means they are competing with someone and that someone could be a loser depending on the scenario.
My own opinion, most folks don’t like market makers or folks who work in financial markets are simply not well informed. The efficient allocation of capital is a valuable service to humans in a capitalist society. People often forget how wide spreads were in the past and that humans were swallowing that margin up with little competition. Now market making is highly competitive and because of it investors both small and large benefit from it.
rufus_foreman|6 months ago
_Algernon_|6 months ago
Some amount of extremely competent engineers worked on the tech that made it possible to target beauty ads to insecure teen girls when they deleted a selfie.
Some amount of extremely competent engineers where complicit in building the tech that stoked the fire under the Rohingya genocide.
I could go on, but I think you get the point.
blitzar|6 months ago
infecto|6 months ago