[chronic640201]

Mathematics can only take you so far. At the end of the day, people run the exchanges. Not math.

The returns of modern HFT market makers are even higher. With their unfair “business” advantages such as PFOF, privileged dark pool and block trade access, and military internet infrastructure.

Think 60%+, per year, at least. Over 10-20 years, of course.

[eru]

> The returns of modern HFT market makers are even higher.

The returns of a child's lemonade stand are even higher...

Market makers and lemonade stands are mostly about paying for labour (and ideas etc, but let's call that 'labour', too). Capital requirements are rather low. So taking all the profit and attributing it to capital returns tends to give you weird numbers.

[chronic640201]

> So taking all the profit and attributing it to capital returns tends to give you weird numbers.

Why does it matter? Returns are returns. Money in, money out.

After all, people compare HYSA bank interest with TreasuryDirect bond returns with equity ETFs like VTI and QQQ. Each with vastly different capital mechanics.

[eru]

Yes, but there any old schmuck can put some dollars in and get the same return.

Good luck trying that with one of those very profitable market makers and funds: they don't want your capital; or at least they don't want it at the same price (= returns) that we are quoting here. Which suggests that those returns aren't attributable to that capital at all (even though for tax reasons they might structured it so that legally these are counted as capital returns, but that just obscures the underlying economic reality).

This is very similar to observing that a particular company pays a lot of money for some very simple job; but then we notice that the job is only available for the son of the CEO. We can conclude that the extra pay isn't really for that simple job.

Or when we notice that a government contractor officially charges 5000 dollars for a hammer. Unless you and me could rock up and steal market share by offering to sell hammers for 4000 dollars, it's very likely that the 5000 dollars aren't really for the hammer at all; but just some accounting shenanigans.

[tombert]

That doesn't surprise me; doesn't Citadel keep the entire bid-ask spread for every transaction they facilitate? Presumably between that and arbitrage opportunities that pop up from option contracts alone, I have no doubt that market makers clean up pretty well.

They wouldn't hire me either!

[eru]

Citadel has plenty of competition, eg from Jane Street. The markets for market making are some of the most efficient markets on the planet.