[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.

[looperhacks]

They got banned because they were accused of pretty bad market manipulation (which Jane Street denies of course)

[wyager]

Most likely they got slapped in india because a domestic market maker bribed the right regulators and JS did not

[infecto]

At the end of the day they are a prop firm. They are a business trying to make money and part of that is market making but it’s not solely market making.

You may not like it but we function in a capitalist society and as such the efficiency of markets is part of that. To have that happen usually requires the market as a whole participating and that includes firms like Jane Street. In the India case I don’t know if what they were doing was illegal or not, India is complicated and the laws there in my opinion are influenced not as much by standards but how well you scratch the itch of others. It is clear the option markets in India was/is highly inefficient in that Jane Street was able to pull the rug over and over. I would be curious who the counter parties were and if this is more about pride of Indian financial institutions not being competent instead of this being illegal. Thinking more about Hindenburg and how India reacted. In the US it feels like a gray area because at the end of the day the options market was clearly clueless on how they should be pricing the options.

Speaking from a US perspective people get thorny on these topics but I think it’s great that folks are always pushing the boundaries. This type of law is tested and we figure out what is ok and what is not. It’s often not cut and dry. Maybe Jane Street was entirely in the wrong in India and they will pay a price. Maybe not. Hopefully their markets learn and benefit from it.

I don’t believe any of us are in a position to say how folks should be spending their time. If we went down that road we could probably argue it back to nobody should be working and should simply be farming for our own food.

[whitexn--g28h]

The majority of counterparties were regular citizens, who did not understand that what Jane Street was doing was even possible.

Money is debt, you can’t make it without someone else owing it. Taking billions in profits from India’s stock market is pretty straightforward, millions of Indians lost their savings.

[infecto]

You’re not entirely wrong. India does have a problem with gambling and especially in Bank Nifty. I think something like 50% of options volume is retail, which is wildly high. Just because there is a gambling problem does not make it “pretty straightforward”. The courts will hopefully figure it out to their local pleasing.

Edit: I don’t think my point was clear. If you are going to allow retail in the options market, you should also be ok with sophisticated actors participating in it.

[antonvs]

> I don’t believe any of us are in a position to say how folks should be spending their time.

We obviously can't tell people how to spend their time, but we can point out that there might be moral reasons to avoid working in industries and for companies with particularly strong negative impacts on society.

> If we went down that road we could probably argue it back to nobody should be working and should simply be farming for our own food.

This is a classic false dichotomy. There are an infinite number of middle grounds between farming for our own food and an ultracapitalist dystopia in which morality is replaced by profit.

[infecto]

Sure, but that’s kind of my point, once you open the door to moral gatekeeping of jobs, it gets very slippery very fast. You can always trace the “negative impact” argument up or down the stack. That accounting software? It helps a business capture margin. That business? Probably acting as a middleman extracting value from someone else. Even compiler contributions ultimately fuel businesses optimizing for profit.

You’re right that there are middle grounds between subsistence farming and some caricature of ultracapitalism, but deciding where to draw that line in practice is messy. Pretending it’s obvious which industries are “moral” and which aren’t usually says more about someone’s priors than it does about some universal ethical framework.

At the end of the day, efficient allocation of capital, imperfect as it is, is what makes the system work. It drives productivity gains, lowers costs, and ultimately raises living standards across the board.

[antonvs]

> efficient allocation of capital

One big problem is that such claims are often cover for what amounts to theft. PE companies loading acquisitions with debt, for example, or "enshittification" - both tactics which are optimized to transfer wealth to investors, not improve the overall allocation of capital.

The idea that all these shenanigans are "efficient allocation of capital" is just propaganda, left over from decades ago before the system became what it is today.

This is where you need government intervention and controls, but unfortunately the US government is structurally and systemically unable to provide that. Regulatory capture, legalized corruption ("campaign finance", "lobbying"), money as speech, corporations as people - none of this is morally sound, and the justification that it's all in service of "productivity gains, lower costs" etc. is hollow.

> but deciding where to draw that line in practice is messy.

Of course - that's the nature of morality, it's inherently political. There would be no morality without other people. But that doesn't mean we should throw up our hands and give up on it.

[smokel]

It would be nice if smart people would not require law to operate in an ethical way. For complicated problems, and for people who are just plain stupid, it's nice to have law and law enforcement, so that capitalist society can work properly.

But the idea that smart people should "push the boundaries" to find out "what is ok and what is not" is either naive or borderline sociopathic IMNSHO.

[infecto]

I’m not being naive or sociopathic here, I’m pointing out how securities law actually functions, at least in the U.S. It’s rarely as cut-and-dry as you suggest. The courts exist precisely to resolve ambiguity, and there’s always some ebb and flow depending on the administration and the legal environment.

Before throwing around labels like “naive” or “sociopath,” it’s worth recognizing that a capitalist system relies on efficient markets, and efficient markets depend on laws being tested and clarified through the courts. That process benefits everyone.

I’m not making an ethical defense of any specific behavior. I’m saying that just because someone benefits from mispricing in a market doesn’t automatically make it unethical. The courts help define those boundaries. If you reject that premise and prefer a system without capitalism, then we’re simply talking past each other.

And for what it’s worth, tossing out loaded terms like “naive” or “sociopath” isn’t exactly an argument, it’s just lazy rhetoric. It’s ok for us to disagree but why use such a lazy argument?

[smokel]

I'm not opposed to capitalism, and enjoy its benefits everyday. I don 't however agree that efficient markets are required for capitalism. I also don't think that HFT is the only way to create efficient markets.

I do however believe that gaming the system for personal profit is unethical. The intention of the law might have been to build a playground for people to enrich themselves, but from a Christian standpoint, I don 't think this always works out well for society. I'm not a Christian, but I do like some of its values.

I was a bit disappointed about the suggestion that capitalism requires certain things that make Jane Street a necessity. This is not a fact, nor does the current process benefit everyone equally. Rejecting that notion, and possibly reading a bit too much into that, is what caused me to use said terms.

I do agree that we are probably talking past each other though :)

[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.

[fHr]

That is true but capitalism sadly encourages the more profit the better. With making less and less in traditional research jobs for example and rising costs, this positions come more attractive by the second. It is sad to see.

[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.

[achierius]

Both ad tech and quant work are essentially involuted in that you're spending ever greater amounts of effort and manpower to squeeze out marginal gains because of how much profit doing so provides. Society would not significantly notice or suffer if we spent half as much time on things like this. There are much bigger things we need to do.

[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.

[wk_end]

There’s a few orders of magnitude between “human-speed trading” and the absolute bleeding edge of HFT. A company like Jane Street still does automated trading far faster than any human could.

Sure, Jane Street probably isn’t the fastest in the business, but I wouldn’t be surprised if they’ve got FPGAs or ASICs, dedicated high speed pipes to shave off milliseconds of latency, things like that.

[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.

[infecto]

I don’t disagree that people don’t get into HFT because they’re trying to save the world. It is mercenary in the sense that the rewards attract talent. But calling the work itself valueless misses the point, liquidity and price discovery are public goods. You notice them most when they don’t exist, and the cost of capital spikes for everyone.

As for the “bucketloads of cash,” that’s just how competitive advantage in markets gets priced. If firms didn’t deliver something real, the money would dry up quickly. Markets are brutally efficient at punishing dead weight.

Philanthropy is great, give to causes you care about. But it’s worth recognizing that the system enabling those donations in the first place is the same one that relies on liquidity, efficient spreads, and functioning markets.

[rufus_foreman]

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