In a world of ultra-fierce competition among proprietary traders, it has become increasingly challenging for newer, smaller players to succeed. We have been keeping a close eye on two players who appear to be bucking this trend above the rest. One of them is option market maker, Simplex Trading. In this Feed post, Alphacution showcases the latest 13F reporting to test for signals of Simplex's ongoing success...
There are many ways to rank prop firms and market makers, given the right data. However, depending on the market or the metric used, rankings will differ. Outside of our case studies, here are some figures we've never shared on the Feed, and the implications are likely to be quite consequential for the road ahead...
"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 [...]
“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in our just-published case study, "The Rise of Hudson River Trading," 2) an expanded version of an already somewhat outdated exhibit originally published in our "History of Jane Street" case study (below), and 3) only an excerpt of a much larger global map of entities that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 [...]
“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 [...]
"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change, that lives within the means available and works cooperatively against common threats."Charles Darwin Consider that the capital markets are like an evolving ecosystem wherein the players - from market makers to hedge funds to the largest asset managers, among others - are like various species of creature. Depending on environment conditions and levels of adaptability, some species thrive and some don't... On the extinction front, just today Bloomberg reported that York Capital Management's founder, Jamie Dinan, announced that he would be existing the firm's hedge fund strategies thus joining other high-profile hedge fund exits for the year, including John Paulson of Paulson & Co and Louis Bacon of Moore Capital Management and a growing list of legends and luminaries who have already retreated from the hedge fund business. In parallel, this event strengthens Alphacution's core thesis about the finite capacity of alpha, the [...]
"Stock options trading has skyrocketed 31 percent this year to an annual record, lifting the fortunes of the firms in Chicago that specialize in them."Crain's Chicago Business reporter, Lynne Marek Alphacution contributes analysis to the Crain's Chicago Business story on how local firms have pocketed profits and expanded operations in a record boom after several tough years in "It's a great time to be an options trader" with mentions of Chicago-based firms, all of which Alphacution has touched upon (or more) here on the Feed, including Citadel Securities, Wolverine Trading, Old Mission Capital, Simplex Investments, Dash Financial Technologies, Chicago Trading Company (CTC) and Akuna Capital. Recent related analysis on option markets in Alphacution Feed posts include: Pennies and Locomotives: Hypothesis for Virtu's Next AcquisitionSummary: 2020 Order Routing Revenue Expected to Exceed $2 BillionOptions Powerhouse IMC Financial Markets: Stung by Pandemic Volatility?Simplex Trading: Against the Odds Runaway Concentration Risks in US Option Markets
"Words ought to be a little wild, for they are the assault of thoughts on the unthinking."John Maynard Keynes Back in the day, we called it picking up pennies in front of locomotives. Today, that locomotive is one nasty beast... Virtu is having a banner year in 2020, with 9-month net trading income (NTI) at an all-time high of nearly $2 billion. Virtu also appears to be well-positioned to benefit from periods of heightened volatility and volume in its core US cash equity strategy going forward. In other words, there is no specific need for Virtu to do anything dramatic. So, our hypothesis here is this: If there was a dramatic move to be made by Virtu that would cause a material uptick in growth potential, what could it be? Note: If you haven't already done so, our recent Feed post, "Trading Strategy Secrets: Hiding in Plain Sight" is worth reading as a detailed setup for this post... Right out of the gate it needs to be said that we [...]
"Do not go where the path may lead, go instead where there is no path and leave a trail."Ralph Waldo Emerson The juggernaut that is the Robinhood commission-free trading app has accumulated some dents and bruises over the year, along with a number of truly breathtaking successes. One of the more overexposed stories in a year engorged with superlatives, system outages, a customer suicide and, most recently, the hacking of thousands of accounts has challenged Robinhood's meteoric rise along the way. Together, these headwinds have delayed Alphacution's prediction of the timing of an oncoming IPO. All that said, one aspect of the Robinhood juggernaut - certainly among the more important aspects to its key stakeholders - is persistent growth in order routing revenue; the largest component of total revenue. After two quarters of blockbuster, pandemic-fueled numbers showcasing the inner workings of Robinhood's order flow firehose, the Q3 2020 order routing figures have recently been made public. The headline is that after the second quarter's monstrous $180.3 million in payments for [...]
“The best way to differentiate the good from the bad is to look at economic incentives. Companies that sell you a physical product or a subscription are far less likely to abuse your trust than a company with a free product that depends on monopolizing your attention.Robert McNamee, Zucked: Waking Up to the Facebook Catastrophe Amsterdam-based International Marketmakers Combination BV - more commonly known simply as IMC - is one of the most legendary proprietary option trading powerhouses in the world today; one of only three remaining independent prop firms - behind Optiver BV (1986) and Susquehanna International Group, LLP (1987) - founded in the 1980's during an era known for other pioneers like O'Connor & Associates, Hull Trading and Cooper Neff: IMC has a very successful Chicago-based unit representing roughly 40% of global headcount of ~800 known as IMC Chicago, LLC (d/b/a IMC Financial Markets) that was established on April 27, 2000 - originally under the name, Holland Trading House, LLC - to engage in proprietary trading in securities, [...]