How Many Heads Does It Take To Run A Bank?
< Insert inspirational employee-oriented quote here > There was a time when we dedicated a lot of effort on these pixelated pages to the impacts of technology on the bulge bracket investment banks and other major sell-side players. We even set out to tracking the aggregate headcounts of the top 9 investment banks - a Headcount Index, of sorts - as one paradoxical attempt to quantify the adoption of technology, and therefore, the implied pervasiveness of workflow automation [...]
Simplex Trading’s Book: An Educational Tool Hiding in Plain Sight
"My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time." - Steve Jobs If you happen to be reading this note while occupying a seat at a firm like Wolverine Trading or Peak6 or D. E. Shaw or AQR or any number of other mythological market creatures that we have yet to model, please don't fret. We will get to you soon enough... For now, we are [...]
Hudson River Trading’s Book: Hiding in Plain Sight
“Any fact becomes important when it's connected to another.” - Umberto Eco, Foucault's Pendulum It is always fascinating to experience the fleeting juxtaposition of data and mythology. Before, there is only mythology, where almost anything is possible. And then, data enters the picture and for a brief moment they coexist until mythology dissipates and is forever changed. Students of this game are often aware of the lists of notable proprietary trading firms and other secretive trading entities, but there [...]
Prelude to Deconstructing Susquehanna International Group
"Design is not just what it looks like and feels like. Design is how it works." - Steve Jobs In the lead up to the publication of our next case study on legendary derivatives trading powerhouse Susquehanna International Group (SIG), I wanted to provide context on how the proverbial sausage is actually made: Maybe it is true of most firms across most industries, but what we have found in the trading business is that companies tend to become [...]
The Physics of Market Structure – Part 1
"Learn how to see. Realize that everything connects to everything else." - Leonardo DaVinci Capital formation... Price discovery... These are the primary goals of market structure mechanisms. A place to gather - whether that place be a Buttonwood tree or a bank of caged servers - and a playing field framed with enough freedom for participants to discover and set asset prices based on publicly available information. Now, as most of you know, this opening salvo can go [...]
Who is Group One Trading?
"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it." - Henry Ford Please forgive me for trying to squeeze just one more reference to HBO's hit series out of the tube, but it turns out that "GoT" is not the only G.O.T. In our current mission to focus on those notable players who thrive in closest proximity to the sources of market liquidity (in order to quantify their impact [...]
Modeling Ray Dalio’s Modeling: The Art of Position Concentration
If you're not failing, then you're not pushing your limits, and if you're not pushing your limits then you're not maximizing you're potential." - Ray Dalio When we first exposed our initial thoughts on this legendary hedge fund manager in Bridgewater Associates: Modeling Ray Dalio's Modeling, the key finding was that their investment strategy was impersonating that of a macro manager (which historically relied largely on futures) by using ETFs to shoulder the primary market factors. In the [...]
Volatility, Accidental Alpha and the Ghost of GETCO…
"If we knew what it was we were doing, it wouldn't be called research, would it?" - Albert Einstein For this one we need to go all the way back to the first time we illustrated the fact that KCG's market making operation - the artist fka GETCO (or, Octeg for the uber-insiders) - was more sensitive to volatility than Virtu's market making operation, as illustrated below: Now, I know we've spent an inordinate amount of time on [...]
More Flow Traders NV: Dominating European ETP Market
"There are two kinds of people in the world: 1) Those who can extrapolate from incomplete data Oftentimes, when we are expanding an existing model - or, focusing in on a new modeling thread - it makes more sense to keep going until we have absorbed all the relevant data, even after we have already teased some of the findings on the Feed, than to stop and restart down the road. Better to stay in a patch of [...]
Flow Traders: Bigger, Better Than Ever, With a Twist…
"The true sign of intelligence is not knowledge, but imagination." - Albert Einstein Ugh! So many great stories to tell, and so little time to tell them... This one will need to be largely a storyboard for now, and then hopefully we can circle back and expand the narrative a bit (or, ideally, turn this into a full blown, deep-dive case study at some point). Anyway, given the similarities we demonstrated between Flow Traders NV (FTNV) and Virtu [...]
