[plst]

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)

[doovd]

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.

[monospacegames]

Is that why they got banned in India recently? Because they were too good at offering complex financial instruments to customers at competitive prices?

Ultimately companies like Jane Street have no moral rudder and it is a waste of talent for smart young people to work for them, but we are so far beyond such considerations at this point that it sounds naive to even suggest that maybe talented people should work on things that make society better for everyone and care about the moral implications of their work. Instead everyone is looking for a way to contribute to the coming dystopia in whatever way they can because that's where the money is.

[Shacklz]

> It's a common rhetoric from someone who has no clue about financial markets (the person you replied to).

I think what OP meant is that producing all this fancy advanced tech just to play the financial game isn't all that much benefit for society.

And when looking at societal development in the last couple of decades with the increasing gap in distribution of wealth, social mobility and overall life expectancy declining and other such metrics, I think it's a valid standpoint that maybe, the collective smarts of our society could be allocated a bit better than putting them into companies like Jane Street; as impressive as their work is.

[blargey]

That's a terrible example - how much room for improvement is left for the VOO-tier sensible, simple investment vehicles that matter to normal people with their monthly 401k buys? 1/10th of a BP? 1/100th? Is Jane Street hiring to chase diminishing returns to such broadly relevant, already-efficient markets, or to cook up new market-manipulation schemes of the sort that got them kicked out of India, that are antithetical to the market integrity such firms are supposed to provide?

The notion that efficient markets require firms like Jane Street to endlessly chase extra "edges" is a false dichotomy. The world would be a better place if intelligent people made more of the concrete products and services that get priced, than if they chased butterflies to expose that price one minute earlier to concentrate ever-more ephemeral, irrelevant arbitrage opportunities into their own little house like a Maxwell's Demon of the stock market.

[jt2190]

> 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”).

[infecto]

I do like this take and one of the reasons I don’t like how many folks pile in on the same theme “these folks are wasting their lives”. We could make the same reductionist conclusion for probably most of the people here on HN.

[dn97]

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

[wyager]

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.

[pedroza_alex]

AFAIU the service HFT forms provide to the market is liquidity. Basically allowing you to sell stocks/options as soon as you feel like it.

In turn that leads to more efficient markets since prices converge to their "correct" value faster.

[Balinares]

HFT is a different thing from what is being discussed in this thread. With HFT you're talking custom ASICs running within light-nanoseconds range of the target exchange. Ocaml very much isn't in this picture. This is about human-speed trading. Which also provides liquidity and correction of instrument prices towards their fair value, just at a different level.

The societal value of either is debatable all the same, mind you. It's more that wherever you have markets, you have money-making opportunities that can be leveraged, and therefore are.

[logicchains]

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.

[marklar423]

Here's how I think about it:

- 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]

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.

[Balinares]

The societal value of liquidity and a narrower bid/ask spread, while non-zero, is not even remotely commensurate with the bucketloads of cash that the top firms bring in.

It's mercenary work, plain and simple. Advanced, interesting, full of juicy maths, highly competitive, rewarding, but mercenary. No one's doing this job for the good of the world, come on.

Give some of your earnings to trans defense NGOs, now that makes a difference and I'll be personally grateful.

[rufus_foreman]

What use was it to anyone when Gerolamo Cardano devised the rules of probability in order to win at gambling?