Math prodigy runs market-making empire(bloomberg.com)
bloomberg.com
Math prodigy runs market-making empire
https://www.bloomberg.com/news/articles/2023-05-11/ken-griffin-s-hand-picked-math-prodigy-peng-zhao-runs-market-making-empire
89 comments
https://archive.md/QjxNS
> Among the CEOs of Wall Street’s key firms, Zhao has kept an unusually low profile.
those glossy photos taken by none other than Bloomberg (for the “article” perhaps?) just screams “unusually low profile.”
those glossy photos taken by none other than Bloomberg (for the “article” perhaps?) just screams “unusually low profile.”
It is well known that Bloomberg periodically pushes puff pieces to lure tech talent into Finance. This fees like it is one of them.
This looks like a purposeful distraction from Citadel’s cash cow of “payment for order flow”, which essentially allows them to cache orders at prices delivered to consumers less profitable than what they realize when matching at slightly different times, advantageous to Citadel, from their cache. Consumers using Robinhood famously are handing profit to Citadel, and the Robinhood founders[edit]/shareholders. They kick back a fraction of their profit to ensure apathetically timed orders keep being funneled through Citadel.
Can you provide evidence that PFOF is harming retail traders? studies keep showing the contrary.
https://www.barrons.com/articles/payment-for-order-flow-sec-...
> In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price.
> But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239
https://www.barrons.com/articles/payment-for-order-flow-sec-...
> In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price.
> But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239
That's not really surprising though.
First Citadel destroys lit markets by having the majority of US orders routed to them for dark execution using things like Citadel Connect (less regulated and worse than a dark pool, which they also love by the way) and then they scream "look we give you better prices than you can get at the lit markets that we just destroyed (after literally front-running you)". Please love us, we're doing god's work!
Sidenote: like Madoff there's a massive conflict of interest where Ken Griffin owns both a (huge) market maker business as well as a hedge fund (that had 64 billion in securities sold, not yet purchased "at fair value" on its balance sheet against some 4 billion in assets).
PS: I'm just going to call it. That CEO Zhang doesn't exist and is generated by AI, just to distract from all the massive Citadel crime. Maybe tin foil, maybe not.
PS PS: Citadel need to dissapear and Griffin needs to be in jail. He is Madoff 2.0 supercharged.
First Citadel destroys lit markets by having the majority of US orders routed to them for dark execution using things like Citadel Connect (less regulated and worse than a dark pool, which they also love by the way) and then they scream "look we give you better prices than you can get at the lit markets that we just destroyed (after literally front-running you)". Please love us, we're doing god's work!
Sidenote: like Madoff there's a massive conflict of interest where Ken Griffin owns both a (huge) market maker business as well as a hedge fund (that had 64 billion in securities sold, not yet purchased "at fair value" on its balance sheet against some 4 billion in assets).
PS: I'm just going to call it. That CEO Zhang doesn't exist and is generated by AI, just to distract from all the massive Citadel crime. Maybe tin foil, maybe not.
PS PS: Citadel need to dissapear and Griffin needs to be in jail. He is Madoff 2.0 supercharged.
The people who think retail is being harmed could not have traded 15 years ago.
Anyone who thinks things were better for retail back in the day with at least $5+ per side and some guy in the middle in NY or Chicago making a market on a floor is a moron. There is just no other way to put it.
Markets in 2023 is an absolute dream for retail.
Anyone who thinks things were better for retail back in the day with at least $5+ per side and some guy in the middle in NY or Chicago making a market on a floor is a moron. There is just no other way to put it.
Markets in 2023 is an absolute dream for retail.
True : i remember riding my bike as a kid to my local bank to pay a broker to put in an order to buy a couple thousand dollars (saved from doing landscaping in our neighborhood like kids did in the 80s) of useless IBM. Totally flipped a coin between IBM and Microsoft.
PFOF has to beat the best market price at execution time. How is Citadel taking robinhood consumers’ profit then?
In case you’re wondering how this is even possible to be a win-win, it’s because retail order flow is considered non-toxic, roughly meaning it’s OK to market-make against because it’s roughly symmetric and not backed by a market moving signal. So creating an arena for retail orders to fill each others’ orders can allow for legitimately better fills because it’s safer for the market maker.
From what I understand PFOF is only problematically profitable in the options market where NBBO spreads can be quite wide, but I’m pretty sure Citadel is not even a major player there.
In case you’re wondering how this is even possible to be a win-win, it’s because retail order flow is considered non-toxic, roughly meaning it’s OK to market-make against because it’s roughly symmetric and not backed by a market moving signal. So creating an arena for retail orders to fill each others’ orders can allow for legitimately better fills because it’s safer for the market maker.
From what I understand PFOF is only problematically profitable in the options market where NBBO spreads can be quite wide, but I’m pretty sure Citadel is not even a major player there.
> ...but I’m pretty sure Citadel is not even a major player [in the options market].
A quick sanity check suggests Vanguard[1], Fidelity[2], Schwab[3], and TD Ameritrade[4] disagree with your assertion.
[1] https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff
[2] https://clearingcustody.fidelity.com/trade-execution-quality...
[3] https://www.schwab.com/legal/order-routing-1
[4] https://www.tdameritrade.com/disclosure.html
A quick sanity check suggests Vanguard[1], Fidelity[2], Schwab[3], and TD Ameritrade[4] disagree with your assertion.
[1] https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff
[2] https://clearingcustody.fidelity.com/trade-execution-quality...
[3] https://www.schwab.com/legal/order-routing-1
[4] https://www.tdameritrade.com/disclosure.html
> From what I understand PFOF is only problematically profitable in the options market where NBBO spreads can be quite wide, but I’m pretty sure Citadel is not even a major player there.
Not sure if it's the same niche but bloomberg quotes Citadel at 25% market share[0]
[0] https://www.bloomberg.com/news/articles/2020-02-25/citadel-s...
Not sure if it's the same niche but bloomberg quotes Citadel at 25% market share[0]
[0] https://www.bloomberg.com/news/articles/2020-02-25/citadel-s...
its sort of a catch 22, feedback loop. the reverse of "Nobody goes there anymore. It's too crowded" - Yogi Berra.
If all the trade volume on an exchange moves to a private room, because the private room is cheaper, because its cheaper cuz of the volume, and it has the volume cuz everyone moved there, because its cheaper ...
Sure, they invested a lot of money to make technology that can beat the exchanges. But part of the reason they beat the exchanges is because they took all the trades and can match better not because of their tech but because of all the liquidity.
If all the trade volume on an exchange moves to a private room, because the private room is cheaper, because its cheaper cuz of the volume, and it has the volume cuz everyone moved there, because its cheaper ...
Sure, they invested a lot of money to make technology that can beat the exchanges. But part of the reason they beat the exchanges is because they took all the trades and can match better not because of their tech but because of all the liquidity.
I mean, they can beat the exchanges because retail flow is highly non toxic and taking the other side isn't risky.
This is the essence of PROF price improvement.
This is the essence of PROF price improvement.
> PFOF has to beat the best market price at execution time.
What’s an example?
What’s an example?
This article has a good explanation: https://www.bloomberg.com/opinion/articles/2021-02-05/robinh...
https://archive.is/ij2Q3
https://archive.is/ij2Q3
thanks
As a retail customer that has done volatility trading I've used RH and other brokers that route through Citadel, because they gave better fills/commissions that made my returns more profitable.
The reason for this is that they can give tighter fills to small scale (and presumably dumb) retail investors.
> and the Robinhood founders.
Do you mean the Robinhood shareholders?
The reason for this is that they can give tighter fills to small scale (and presumably dumb) retail investors.
> and the Robinhood founders.
Do you mean the Robinhood shareholders?
Interesting, I’m having trouble understanding how in Robinhood you are aware that you’re benefitting from the Citadel flow, how do you see/know you are getting better fills/commissions? I am not aware of how you would know Citadel is involved in your activities. Are you comparing the same trade on different platforms and see that RH is better? Could you provide an example (if you do not want to expose your trading strategies that is understandable)?
The active orders on some brokers tell you how they got routed (i.e. via "Citadel"). I did some testing, with similar trades. Some of the difference is just from the commissions structure -- if it's not a percentage of contract price, smaller priced contracts benefit from lower commissions. I was buying and selling long and short strangles and straddles or iron condors. Sometimes strangles with farther out contract legs, at prices like 0.40-0.80, would use Robinhood (simply because I had an account with them, and not every other broker), while nearer contract legs at higher prices on the same underlying would use Fidelity or IBKR.
Generally I was entering and exiting, not holding to expiry, so I had 0.65x4+fees = 2.70 in commissions for a given contract pair on Fidelity. Nowadays it'd often be about 2.05 on Fidelity because they let you close contracts under .65 for free. I didn't think to negotiate commissions, but I was surely too much of a small fry for that.
Generally I was entering and exiting, not holding to expiry, so I had 0.65x4+fees = 2.70 in commissions for a given contract pair on Fidelity. Nowadays it'd often be about 2.05 on Fidelity because they let you close contracts under .65 for free. I didn't think to negotiate commissions, but I was surely too much of a small fry for that.
[deleted]
Yep thank you
Citadel makes money with PFOF for sure, but it is usually a net good for retail investors. If it wasn't the brokerages wouldn't be allowed to do it: https://www.finra.org/sites/default/files/2021-06/Regulatory...
> at prices delivered to consumers less profitable than what they realize
That’s not true, HFT firms like Citadel are required to improve on the national bid/ask spread. They are saving the consumers money compared to their orders being sent to NYSE or NASDAQ
That’s not true, HFT firms like Citadel are required to improve on the national bid/ask spread. They are saving the consumers money compared to their orders being sent to NYSE or NASDAQ
How exactly does that work?
FINRA requires reasonable effort, which is curious.
FINRA requires reasonable effort, which is curious.
On a given trade, they might be required to provide a benefit to their customers, but what are they able to do with the combined data that is all the others they handle? Surely they are able to manipulate securities based on this data and short/long securities in ways that are typically in opposition to retail, thus costing their “customers” money.
How do they "manipulate" this data in any form? That is not how any of this works, it just sounds like a conspiracy theory talking point to keep saying citadel are conspiring against everyone.
This is nonsense. This isn’t a data mining opportunity. One of the reasons this works is that retail investors are relatively uninformed compared with larger players that are selling large blocks of shares. There are usually as many retail investors selling as buying smallish lots that doesn’t create a large price movement.
expect to read this on wsb, not here. Multiple research papers have shown PFOF is not as detrimental as it made out to be, and it certain cases actually help retail investors (narrow spreads, zero fee trading, better fills). Some retail traders tend to externalize their loses by blaming it on exchanges, Nancy Pelosi and the 'system'.
> expect to read this on wsb, not here.
From past threads this is exactly this kind of nonsense I expected: People with a tenuous grasp on reality chiming in with moronic conspiracy theories. WSB atleast acknowledges that they are a bunch of retards.
From past threads this is exactly this kind of nonsense I expected: People with a tenuous grasp on reality chiming in with moronic conspiracy theories. WSB atleast acknowledges that they are a bunch of retards.
Sometimes the folks you call retards actually work in trading software with big institutional banking clients.
can you link to "wsb" so i can look up such research papers? "not as detrimental" seems like you're saying it still is profitable for Citadel?
How would retail traders blame Pelosi (but I believe you that they would)? The Pelosi's are basically wealthy because they're in their 80s and Mr Pelosi bought early cheap stock in many successful Silicon Valley (then) startups.
How would retail traders blame Pelosi (but I believe you that they would)? The Pelosi's are basically wealthy because they're in their 80s and Mr Pelosi bought early cheap stock in many successful Silicon Valley (then) startups.
> his class received two coveted tickets to take a test to enter a prestigious math olympiad. One naturally went to Zhao, the top student, who promptly lost it. No need to worry, he told his father, he didn’t want to go, and if necessary he could ask the school for the other kid's ticket. His dad wouldn’t have it.
Enough said about the ethics of this guy.
Enough said about the ethics of this guy.
Paid piece by citadel?
Seems likely. Citadel recruits hard from colleges for top students, this sort of piece would put Citadel on the students’ radar.
I don't think Citadel really struggles to be top of mind for the kind of people they want in their company.
They kind of do, their reputation is like the AWS of quant firms. Like you might get paid about as well as your buddies in “peer firms” but the hiring standards are a little looser and you have a 50% chance of ending up on a team with a hellish WLB guaranteed to burn you out.
If they want to rehab their image IMO they need to get KG out of the limelight (which I guess this puff piece does) but also fix their WLB reputation.
If they want to rehab their image IMO they need to get KG out of the limelight (which I guess this puff piece does) but also fix their WLB reputation.
More likely Citadel saying "look over here! We make money from this mysterious math prodigy and not from market manipulation!"
You're getting down voted but the amount of cutesy and apocryphal anecdotes in that piece was funny.
This was posted 4 days ago. Unfortunately, people didn’t have much to say then either.
The idea that math can effectively be used to “beat the market” seems like a fascinating subject where few want to divulge the secrets. Math has been used for decades:
https://www.amazon.com/Beat-Market-Scientific-Stock-System/d...
https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/0...
One idea that does come up is reversion toward the mean, but few details are offered.
The idea that math can effectively be used to “beat the market” seems like a fascinating subject where few want to divulge the secrets. Math has been used for decades:
https://www.amazon.com/Beat-Market-Scientific-Stock-System/d...
https://www.amazon.com/Man-Who-Solved-Market-Revolution/dp/0...
One idea that does come up is reversion toward the mean, but few details are offered.
Zhao probably has a three or four sigma IQ, but the rest of the talent is still on a pretty long tail, and the beauty of markets is that in every single one of billions of trades, someone is always wrong. I am not in finance, but every person I have spoken to in finance clams up immediately when I mention anything remotely quantitative. It's not just because I'm being boring, they know they are playing a game of poker that is never not-on.
The most interesting exchange I had was with some derivatives traders, and I asked broadly what kind of math was being used at their bank. Was it graduate level, was any of it novel, and was it within the reach of programmers. The answer was "no, no, yes" and they wouldn't say anything else. I suspect the secrecy is creating an intellectual mean reversion, where you do a thing that works and run it until it is traded out, and then never say anything about it so you can cost your competitors the time thinking about it.
However if none of the math is novel, then current strategies are not information problems that need new science, they are work problems that piece together solved ones, and whose efficiencies come from competency in related domains. I could see how one could become seized by markets like that.
The most interesting exchange I had was with some derivatives traders, and I asked broadly what kind of math was being used at their bank. Was it graduate level, was any of it novel, and was it within the reach of programmers. The answer was "no, no, yes" and they wouldn't say anything else. I suspect the secrecy is creating an intellectual mean reversion, where you do a thing that works and run it until it is traded out, and then never say anything about it so you can cost your competitors the time thinking about it.
However if none of the math is novel, then current strategies are not information problems that need new science, they are work problems that piece together solved ones, and whose efficiencies come from competency in related domains. I could see how one could become seized by markets like that.
Someone isn't always wrong on a trade.
Case in point, someone sells shares to fund their retirement, the counterparty buys those shares for the dividend return and/or expected capital gains. This happens all the time. How is anyone wrong in this scenario?
I agree in principle.
But theoretically if the share is expected to go up at faster than the rate of compounded interest at the current interest rate, then it's a better deal for the seller to instead take out a loan using the share as collateral. And if the share is not expected to go up at faster than the rate of compounded interest at the current interest rate, then it might be a better deal for the buyer to loan out their money instead. The only thing that would make this a worse decision than the share trade are middleman costs.
But theoretically if the share is expected to go up at faster than the rate of compounded interest at the current interest rate, then it's a better deal for the seller to instead take out a loan using the share as collateral. And if the share is not expected to go up at faster than the rate of compounded interest at the current interest rate, then it might be a better deal for the buyer to loan out their money instead. The only thing that would make this a worse decision than the share trade are middleman costs.
In your theory, there is no cost to servicing loans (on both sides), foreclosing on an asset or long term lockup of capital in not perfectly liquid markets. Or other uses for shares (eg exerting corporate control) absent receiving dividend streams.
With the exception of corporate control, this is covered in my final sentence.
None of my costs had to do with middlemen.
Loan servicing costs only exist because of middlemen. If two people directly interface for a loan there is no additional cost (other than the cost of transportation, which only exists because a middleman is charging for gas and car maintenance).
Foreclosing on an asset doesn't happen in my example, but regardless is not a cost, but a risk, which the interest rate should be accounting for.
Longterm lockup of capital is not a problem, as either party in my example are financially gaining regardless.
And I granted you the other uses for shares, which technically can be done without buying the share, but at a middleman cost (renting the share).
I really don't care to continue this. Mine was just a hypothetical in favor of the idea that there's always a "loser" (when compared to all possible financial alternatives) in stock trades, even if everyone ends up happy with the trade. Sure, there are holes in the hypothetical, which is why I said I agreed with the comment I was replying to.
Foreclosing on an asset doesn't happen in my example, but regardless is not a cost, but a risk, which the interest rate should be accounting for.
Longterm lockup of capital is not a problem, as either party in my example are financially gaining regardless.
And I granted you the other uses for shares, which technically can be done without buying the share, but at a middleman cost (renting the share).
I really don't care to continue this. Mine was just a hypothetical in favor of the idea that there's always a "loser" (when compared to all possible financial alternatives) in stock trades, even if everyone ends up happy with the trade. Sure, there are holes in the hypothetical, which is why I said I agreed with the comment I was replying to.
People have different risk exposures and different risk appetites. If you're a corn farmer then your entire livelihood is tied to the price of corn. You're willing to give up expected value to reduce risk by selling futures and there are others who are less exposed to corn prices who are willing to take the other side of that trade.
Sure, in an idealized enough world you can make many statements true. In the real world people buy and sell stock for many reasons, and value different types of returns on different time horizons, and it’s likely that for a majority of stock trades both the buyer and seller are happy with the trade.
You see the share market like someone who invests in value stocks. The other poster is showing their hand that they view the market as a casino. Which is sort of the prevailing 'theme' that comes out of places like WSB's.
In short durations it is a casino.
That you “see” a market is just recitation of previously encountered and memorized speech.
It’s just numbers. The labels are arbitrary. A lot of hallucinated money is spent on paying people to recite the correct tags and labels.
It’s just numbers. The labels are arbitrary. A lot of hallucinated money is spent on paying people to recite the correct tags and labels.
> every single one of billions of trades, someone is always wrong... every person I have spoken to in finance clams up immediately when I mention anything remotely quantitative. It's not just because I'm being boring, they know they are playing a game of poker that is never not-on.
No serious financial professional would expect their strategy or any strategy in existence to be 100% correct. A strategy that is correct 51% of the time is more than good enough. You diversify and hedge, and build up an uncorrelated portfolio. Suppose you've honed in on alpha strategy. You probably don't even want to optimize and fit in further, with past data. Instead, you find a beta strategy that is uncorrelated and run those two together. With the amount of capital firms the likes of Citadel are working with, it's impossible to trade in a single product, and so scaling up, in the case of an MM, is to trade everything all at once.
This is also repeated in the article. "[CitSec CEO] diversifies the firm’s earnings so it can better stomach an occasional loss in any part of its business"
> current strategies are not information problems that need new science, they are work problems that piece together solved ones, and whose efficiencies come from competency in related domains
Applied math is not about pushing mathematical theory, necessarily. Then there is a difference between theory and practice, and there is a difference between practice and sizing trades with this scale of AUM. Academics can talk and write papers about LLMs or CRDTs, but they aren't going to be the ones who will be affective at bringing it to market.
No serious financial professional would expect their strategy or any strategy in existence to be 100% correct. A strategy that is correct 51% of the time is more than good enough. You diversify and hedge, and build up an uncorrelated portfolio. Suppose you've honed in on alpha strategy. You probably don't even want to optimize and fit in further, with past data. Instead, you find a beta strategy that is uncorrelated and run those two together. With the amount of capital firms the likes of Citadel are working with, it's impossible to trade in a single product, and so scaling up, in the case of an MM, is to trade everything all at once.
This is also repeated in the article. "[CitSec CEO] diversifies the firm’s earnings so it can better stomach an occasional loss in any part of its business"
> current strategies are not information problems that need new science, they are work problems that piece together solved ones, and whose efficiencies come from competency in related domains
Applied math is not about pushing mathematical theory, necessarily. Then there is a difference between theory and practice, and there is a difference between practice and sizing trades with this scale of AUM. Academics can talk and write papers about LLMs or CRDTs, but they aren't going to be the ones who will be affective at bringing it to market.
you don't need 4-sigma iq to find good strategies, as Warren Buffett and others have shown . sometimes the best strategies are the simplest and just waiting to be discovered, like one such strategy of selling short bitcoin when the market opens, 6;30 am morning and going long QQQ, split 50/50. Then close both at 1pm, pst. This has returned 45% over past year.
>bank
Banks are intermediaries. They are not in the business of doing anything sophisticated.
Banks are intermediaries. They are not in the business of doing anything sophisticated.
You're confusing Citadel and Citadel Securities. Citadel the hedge fund runs many different strategies, including commodities trading and quantitative high frequency strategies that are generally what people think of when looking at books like yours. Citadel Securities is a broker-dealer that specializes in market making, and is popular for being one of the biggest(the biggest?) wholesale market maker for U.S. equities, options, ETFs, etc.
They're connected, but Ken Griffin is focused on Citadel and Peng Zhao runs CitSec.
They're connected, but Ken Griffin is focused on Citadel and Peng Zhao runs CitSec.
You're confusing Alameda Capital and FTX. Alameda the hedge fund runs many different strategies, including crypto trading and quantitative high frequency strategies that are generally what people think of when looking at books like yours. FTX is a broker-dealer that specializes in market making, and is popular for being one of the biggest(the biggest?) wholesale market maker for cryptocurrencies, NFTs, etc.
They're connected, but Sam Bankman-Fried is focused on FTX and Caroline Ellison runs Alameda.
They're connected, but Sam Bankman-Fried is focused on FTX and Caroline Ellison runs Alameda.
Unless I missed something, wasn't FTX the exchange and Alameda the market making specialist that also had a prop book?
The general point stands, that we can't just take their word that they're rigorously separated and not sharing info (a point the HN crowd seems to be missing right now).
The difference is that traditional finance is usually riddled with regulations and legal potholes to find yourself in if you don't follow rules, whereas in crypto the rules consist of whatever validation SBF's excel sheet had.
Yes, and if you want to advance the argument that finance is too well-regulated for anyone to ever break that separation, no matter what the incentive, that would be a great contribution to the discussion!
But that's not what the original comment[1] was doing. It was just saying, the roles are nominally separate, therefore there can't be collusion, which is a hasty inference I was right to call out. I completely agree that a different argument, one not made in the comment I was replying to, might not be so bad!
[1] https://news.ycombinator.com/item?id=35956915
But that's not what the original comment[1] was doing. It was just saying, the roles are nominally separate, therefore there can't be collusion, which is a hasty inference I was right to call out. I completely agree that a different argument, one not made in the comment I was replying to, might not be so bad!
[1] https://news.ycombinator.com/item?id=35956915
"Market-making" doesn't involve "beating the market", it means providing a service for fees.
(That said, you need similar trading skills, otherwise the people "beating the market" will rip you off.)
(That said, you need similar trading skills, otherwise the people "beating the market" will rip you off.)
I’m pretty sure Citadel securities makes more money from their non-wholesale businesses (I.e. on-exchange trading) instead of their retail pfof business. Either way, they are very successful in the competitive hft/trading arm as well as retail.
The hedge fund quant arm is also extremely successful.
The hedge fund quant arm is also extremely successful.
I agree with this, but the comment I replied to is responding to an article about market-making.
Citadels’s market-making arm, Citadel Securities, IS extremely competitive in on-exchange trading. They don’t just do wholesale market making (I.e. service for a price), they provide liquidity on-exchange as well (much more competitive/latency/alpha based than service-at-a-price). They’re also very good at the hft taking.
Given, within Citsec, the retail market making arm is fairly segregated for compliance reasons, but it’s far from the only market making activities they engage in.
Given, within Citsec, the retail market making arm is fairly segregated for compliance reasons, but it’s far from the only market making activities they engage in.
In reality there isn't a distinction between "market-making" and what you would consider "beating the market". Market makers employ the same models and approaches as those who "beat the market", because market makers need to know when and where to quote in order to maximize profitability. And people who classify themselves as those that try to "beat the market" also provide liquidity, making them de facto market makers, even if they often take liquidity too. So, people in the industry don't attempt to draw a clear line between the two categories, because they are so overlapping in practice.
Market making itself is a market, and people compete on cost and speed
that seems like an over simplification. however I do have an aversion to "MBA types" skimming over complicated concepts with the blanket "nerdy mathematics" techniques.
You’re mistaken in how Citadel is using math to make money. It’s not trying to decide which way a stock or bond is moving. It’s a market maker - at anytime someone can go to them and buy or sell an instrument (when no one else might want to take the other side of the deal). Citadel is using math to create the price, decide how much inventory it should keep and create hedging strategies so that it makes a profit however volatile and whatever way the market is going.
Half of Citadel beats the market, the other half are market makers who just make markets and make a steady income from doing so.
Just like Bernard L. Madoff Investment Securities.
Edit: you can downvote but this is literally what Madoff did – he had a market making business and an investment business. I'm not saying that Citadel is a scam at all, just commenting on the business structure.
Edit: you can downvote but this is literally what Madoff did – he had a market making business and an investment business. I'm not saying that Citadel is a scam at all, just commenting on the business structure.
Takes a long time to find the right model, it it is well worth it and if you do find it, you will keep the secret as guarded as possible, otherwise the model will be arbitraged away by the other market participants….
Headline reminds me of Caroline Ellison. Speaking as a non-prodigy mathematician, I hope this story has a happier ending.
I think this is the first time I've heard of a successful long-term career, and general life-fufillment from one of these outlier prodigies that are doing difficult university degrees in their early teens or younger. Terence Tao's another one, and in the past there's plenty, i.e. Mozart, John von Neumann etc.
But, I typically hear of the other extreme these days - child prodigies that struggle to fit into society and end up underemployed and neurotic. Maybe its just a selection bias (its not newsworthy to report on fufilled, grown-up child-prodigies doing their 10th postdoc in knot theory)...
But, I typically hear of the other extreme these days - child prodigies that struggle to fit into society and end up underemployed and neurotic. Maybe its just a selection bias (its not newsworthy to report on fufilled, grown-up child-prodigies doing their 10th postdoc in knot theory)...
Most modern “prodigies” are different from those of the past, the main huge difference being that they have insanely motivated tiger parents working the marketing machine and the system to accelerate their child. And indeed a lot of these children are not actually special any more once their non-accelerated peers catch up.
Terence Tao is a bit of an exception because he is genuinely a far outlier in talent, and he also got a lot of direct tutoring from world-leading mathematicians (like historical prodigies). Like historical prodigies his achievements spoke for themselves, he may have had an accelerated academic career, but it was not the acceleration itself that was noteworthy.
There are plenty of prodigy-level children you never hear about in the news who don’t have parents working the system on their behalf. IMO the news articles like “tested out of HS via GED at 14 and enrolled in local commuter college” is the 30 under 30 of prodigies. Many children could do that, and it’s not even really an indicator of prodigy as much as it is being maybe at the 99%ile.
Terence Tao is a bit of an exception because he is genuinely a far outlier in talent, and he also got a lot of direct tutoring from world-leading mathematicians (like historical prodigies). Like historical prodigies his achievements spoke for themselves, he may have had an accelerated academic career, but it was not the acceleration itself that was noteworthy.
There are plenty of prodigy-level children you never hear about in the news who don’t have parents working the system on their behalf. IMO the news articles like “tested out of HS via GED at 14 and enrolled in local commuter college” is the 30 under 30 of prodigies. Many children could do that, and it’s not even really an indicator of prodigy as much as it is being maybe at the 99%ile.
I read the headline as "Ken Griffey's..." and was a lot more interested.
The Big Short: "Look at my quant!"
https://youtu.be/FoYC_8cutb0
https://youtu.be/FoYC_8cutb0
Because of course someone on Wall Street has to ask what a quant is.
The movie is lots of fun though, Ryan Gosling’s character is hilarious.
The movie is lots of fun though, Ryan Gosling’s character is hilarious.
This guy did come first in that national math competition
Oh well roll out the red carpet; let’s all set aside ourselves aside for this one guy that is good at the language of math.
Grigori Perelman is a better role model.
It’s not hard to dupe the majority into believing BS… see religion.
This math guy is just a guy taking advantage of the notion no one can disprove their divinity.
Grigori Perelman is a better role model.
It’s not hard to dupe the majority into believing BS… see religion.
This math guy is just a guy taking advantage of the notion no one can disprove their divinity.
renewiltord(2)
My realist mind wonders what kind of risk assessment and oversight is being done on Citadel's side considering they are a 'strategic' target underpinning the US economy in many respects.
Its a nice paid piece by Citadel, but really what do we know about what this person's contributions have been?
From what I've heard, you don't make it very far in China without going through some form of struggle session at some point.
The article doesn't even address the elephant in the room (which is China). Making this soft propaganda.
This line of thought makes one wonder if the word prodigy aptly describes his capabilities (or maybe its something else). This is all speculation of course, but it makes you wonder given how egregious China has been about violating sovereignty and laws lately.
I mean opening up a clandestine police station on US soil in NY for the purpose of going after Chinese dissidents and other US Citizens of Chinese descent? You can't be much more egregious in violating sovereignty.
What kind of risk is there to the financial system if Citadel, overnight, could no longer transact business because the keys of the kingdom were given to a prodigy to make money.
Sleeper agents are not an unknown thing in clandestine services. I seriously hope the guy was properly vetted for what its worth.
[Ref Link for NY Police Station](https://www.justice.gov/opa/pr/40-officers-china-s-national-...).
https://www.justice.gov/opa/pr/two-arrested-operating-illega...
Its a nice paid piece by Citadel, but really what do we know about what this person's contributions have been?
From what I've heard, you don't make it very far in China without going through some form of struggle session at some point.
The article doesn't even address the elephant in the room (which is China). Making this soft propaganda.
This line of thought makes one wonder if the word prodigy aptly describes his capabilities (or maybe its something else). This is all speculation of course, but it makes you wonder given how egregious China has been about violating sovereignty and laws lately.
I mean opening up a clandestine police station on US soil in NY for the purpose of going after Chinese dissidents and other US Citizens of Chinese descent? You can't be much more egregious in violating sovereignty.
What kind of risk is there to the financial system if Citadel, overnight, could no longer transact business because the keys of the kingdom were given to a prodigy to make money.
Sleeper agents are not an unknown thing in clandestine services. I seriously hope the guy was properly vetted for what its worth.
[Ref Link for NY Police Station](https://www.justice.gov/opa/pr/40-officers-china-s-national-...).
https://www.justice.gov/opa/pr/two-arrested-operating-illega...