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A Very Tasty Trade

"What's really happening here is that instead of people becoming engaged in finance when they're 40, 50, 60 or whatever, they're finally starting to learn that - hey - this is really cool. And so, we have an entire generation now which is not only going to support capitalism, it's going to accelerate the growth in free markets and [provide] massive amounts of liquidity so that everybody out there is going to benefit. This is the best thing to happen to the global economy in three or four decades. Getting millennials engaged in finance is transformational."Tom Sosnoff, co-founder, Tastytrade; on CNBC Squawk Box, January 29, 2021 in response to a question about the "democratization of finance" and the status of capitalism With all the craziness this week around GameStop, Robinhood and the whole STONKS meme, an event from last week is at risk of being swept under the rug. So, I wanted to add this one to the Feed as a marker before we lose the thread entirely. Here's the [...]

By |2021-01-29T21:37:07-05:00January 29th, 2021|For Subscribers|

Formula One Trading: Ranking of 25 Leading Proprietary Trading Firms and Key Affiliates

“You wanna know which ring is my favorite? The next one.”Tom Brady The detailed exhibit presented at the bottom of this Feed post is 1) featured in our just-published case study, "The Rise of Hudson River Trading," 2) an expanded version of an already somewhat outdated exhibit originally published in our "History of Jane Street" case study (below), and 3) only an excerpt of a much larger global map of entities that Alphacution has been developing to be featured in upcoming research, culminating in a comprehensive case study on the global proprietary trading community later this year... (Fingers crossed.) For now, I want to emphasize that this is not a ranking by anything other than founding year, and therefore, is simply designated as "25 Leading Prop Firms." Otherwise, it would have been more accurately - and provocatively - named, "Top 25 Prop Firms." Yes, the largest - and most dominant - players are in here. But, this list is also a bit US-centric, does not include any APAC players or [...]

By |2021-01-25T12:24:12-05:00January 24th, 2021|For Subscribers|

XTX Markets: Lessons in Strategy Geometry – Part II

“Nearly all men can stand adversity, but if you want to test a man's character, give him power.”Abraham Lincoln In Part I of our Lessons in Strategy Geometry concept, we performed a comparative analysis between the shapes of 13F position rankings for HRT Financial, LLC (an affiliate of Hudson River Trading, LLC; the subject of our next deep-dive case study which is in the oven and almost fully baked, I promise), Latour Trading, LLC, and TRC Investments, LLC (both of which are affiliates of Tower Research Capital, LLC). In that introductory Feed post, our goal was mainly to point out what amounts to underlying differences in strategy, particularly given how unique the Tower "shapes" appeared to be relative to others we had modeled. We didn't go into to much detail beyond that with the idea that it would be more useful to work through possible insights step by step... So, here's a next step: Founded in 2015, XTX Markets, Ltd is one of a very short list of up-and-coming proprietary [...]

By |2021-01-14T00:54:31-05:00January 13th, 2021|For Subscribers|

Cutler Group’s Book: Hiding in Plain Sight

“For last year’s words belong to last year’s language, and next year’s words await another voice.”T. S. Eliot As we were riffing along with our recent Feed post on HAP Trading, I would've sworn than I had already shared a few words on another unique player from the option market making corner of the world, San Francisco-based Cutler Group, LP. Turns out, I had not... With the upcoming publication of a deep-dive case study on Hudson River Trading imminent, Alphacution is going to spend much of the first part of 2021 in option land, cranking out its first multi-player comparative case study on option market makers. So, I don't want to burn too much dry powder here. However, I do want have a standalone post on Cutler in the archives as reference for those who don't yet have access to the case study content... Anyway, in the charts that follow, Alphacution presents a few of its most basic analytics from its modeling of 13F data related to Cutler, with comparison [...]

By |2021-01-04T15:34:43-05:00December 30th, 2020|For Subscribers|

According to D. E. Shaw, RenTech and Other Legends: Hindsight is Not 2020

"Quality means doing it right when no one is looking."Henry Ford I couldn't find the exact reference, but sometime between about 2010 and 2015 I wrote (for TABB Group) that when the market regime eventually shifted from the core drivers of the long, low volatility period of the post-GFC era, many quant models would become disoriented and their performance would suffer. This is simply because the behavioral cues of the new chapter would not be embedded in the historical market data of the prior period upon which those models had been trained. Well, that scenario finally played out this year... So, instead of following the well-worn tradition of preparing a lengthy "Year in Review" post on market highlights and lowlights as we bring this historically bizarre and disorienting year to a close, I thought to let a series of illustrations from some of the world's most legendary players show you symbols for how their year appears to have gone (through Q3 2020) and, by implication, how broad groupings of strategies [...]

By |2020-12-23T21:35:10-05:00December 22nd, 2020|For Subscribers|

Billions of Orders, Trillions of Shares: Comparing NYSE Arca and IEX

"The big question is whether you are going to be able to say a hearty yes to your adventure."Joseph Campbell The intensifying war between that which happens in the dark and that which happens in the light has finally moved equities exchanges fully within Alphacution's cross hairs. Given our belief that leading market makers and other sophisticated, technology-wielding trading firms are disrupting every stakeholder group in the ecosystem, it should come as no surprise to most of our readers that we would eventually arrive here. Since we are committed to following a trail of data - and harvesting insights based on that data - the arc of themes found here on the Feed are biased more to a combination of a somewhat serendipitous and a somewhat informed journey of old-school research than merely targeted at what appears to be popular in the moment. Besides, sometimes we get lucky and serendipity turns out to be prophetic... We don't know what we'll find until we find it, but we trust that something [...]

By |2020-12-21T22:19:55-05:00December 21st, 2020|For Subscribers|

Hudson River Trading vs. Tower Research Capital: Lessons in Strategy Geometry – Part I

"Nature uses only the longest threads to weave her patterns, so that each small piece of her fabric reveals the organization of the entire tapestry."Richard Feynman As a brief prelude to our upcoming case study on Hudson River Trading (HRT), I wanted to tease with some unusual findings: Alphacution has occasionally toyed with understanding the "shape" made by a simple ranking of 13F positions by value, particularly for a selection of leading market making and other proprietary trading firms; typically those with high 13F position counts. Because of the preponderance of portfolio hedging or just because of high position value concentration in the top positions, the common "L" shape yielded no obvious insight. (As reference, we demonstrated this finding early on (in 2018) in our Feed post, "Goldman Sachs' Book: Hiding in Plain Sight.") However, shifting to a log scale ranking created a more interesting shape even though our analysis remains incomplete and interpretations remain elusive. To date, we know that the slope at the beginning of the curve often [...]

By |2021-01-01T18:18:17-05:00December 11th, 2020|For Subscribers|

Walleye Trading’s Book: Hiding in Plain Sight

“There is an old saying: If you want to hide the treasure, put it in plain sight. Then no one will see it.”Larry Dossey By now, avid readers of Alphacution know the joke: We have taken that which had previously been hiding in plain sight about the most secretive and mysterious players in the world of trading, and shed some light on them. Hence, today's title image metaphor is a well lit and colorful chameleon set against a black background. While much more in this zone of the ecosystem is no longer hiding from us, there are many fascinating discoveries yet to be made... Related to this idea, there's a super-cycle of research and development going on in the background at Alphacution, much of it currently about option markets. At the risk of redundancy, the options markets - in particular, those with skills for trading in option and other derivatives markets - hold a special key to the evolution of listed markets, and those who are most likely to remain [...]

By |2020-12-10T23:41:08-05:00December 10th, 2020|For Subscribers|

Susquehanna Securities and the Hidden Stat Arb Strategy

"The mind is not a vessel to be filled but a fire to be kindled.."Plutarch The comment has been made here before, likely more than once: As we go along the path of our research, our ability to see - to interpret the data, and the shapes that are formed from that data - tends to improve. This is not only true of newer shapes forged from amalgamations of newer data - and additional sources - but of older shapes, as well. Recently, I stumbled over a series of charts first published in July 2019 in the Feed post, "Ranking Strategy Speed for Top Quants, Market Makers," which remains among our more fascinating discoveries. Therein, we compared average stock position sizing for a list of notable trading and hedge fund firms, from Renaissance Technologies (RenTech), D. E. Shaw, and Two Sigma to Jane Street, Hudson River Trading (HRT), and Tower Research Capital (TRC). Citadel Securities and Susquehanna Securities were in the mix, as well. The rankings were roughly delineated between [...]

By |2020-12-11T15:57:24-05:00December 1st, 2020|For Subscribers|