Right now, Jane Street is probably one of the most successful and most keenly followed firms on Wall Street. They took the crown as the world's best trading firm, with $40 billion in revenue last year.
And despite the drama about their huge $15 billion loss on Leopold Aschenbrenner's AI-centric hedge fund, they're still among the most respected players on the block.
Even though they have the revenue of a small nation, on par with some of the biggest businesses in the world, details about this highly secretive firm are few and far between.
And yet, by piecing together leaks and insider information, we can see how Jane Street became more than just a company, but a systemically important part of the world's economy—and what dangers might ensue if these financial specialists bite off more than they can chew.
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To start, let's ask ourselves what Jane Street actually does, because this is a question that has even the best and brightest scratching their heads.
Jane Street, at its core, is a market maker.
They make money as a financial intermediary of sorts. If you're selling, they're buying. If you're buying, they're selling.
They provide the liquidity for investors to participate in different markets, and they price everything carefully so they can make a bit of money from each trade.
The scale of what they do is absolutely huge.
In 2023, they were responsible for about 10% of all North American equity trading. That same year, they traded options with a notional value of $32 trillion. And the number is probably much higher today.
Now, Jane Street is best known for operating in the ETF market.
ETF stands for Exchange-Traded Fund, and it's an investment vehicle that was created at the turn of the century, around the same time that Jane Street was founded.
Put simply, ETFs let people invest in index funds or other bundles of stocks live throughout the day.
Jane Street is an authorised participant in most US ETFs, which basically means they're authorised to buy the underlying stocks in a fund, package them, and sell them as an ETF.
Conversely, they can buy the shares and dissolve them into the underlying stocks.
By participating in this way, they can make a huge amount of money exploiting price mismatches between the value of underlying stocks and the ETF share price.
And with $24 trillion in the worldwide ETF market today, there's plenty of money to be made.
More broadly, Jane Street also makes big bucks as a high-volume trader in basically any asset you can think of.
By trading nonstop, they help provide liquidity for the market. That's why they're called market makers.
At the same time, they make their profit by skimming off money for themselves from the spread between bidding and asking prices.
That's Jane Street's bread and butter, and it's why they're often referred to as a high-frequency trading firm.
They're also put in the category of proprietary trading firms, or prop shops.
This is a term used to describe firms that use their own money to trade, not money pooled by clients. And it means they face fewer regulations.
Now, some people argue that Jane Street should be considered one of the most successful hedge funds in the world rather than just a high-frequency trader.
This is because they also make billions of dollars from multi-day directional bets on where the market is going for different securities.
They're also doing more statistical arbitrage, exploiting the difference between mispriced assets in the same class.
This is exactly how hedge funds try to make money.
So, in a nutshell, that's what Jane Street does.
They perch on the metaphorical trading floor, using their money to buy and sell to whoever they can, making money from tiny pricing spreads and increasingly from hedge-fund-esque bets.
Perhaps more interesting than what exactly Jane Street does is why they've been so successful.
The first reason isn't so much what they're doing, but an external change in financial markets.
Namely, people are investing way more money in ETFs.
Industry-wide, ETF trading has grown a staggering 43% in the last year and has been growing at a rapid rate for a while, as investors look for a simple, low-cost way of spreading risk and tracking the market.
A single Vanguard fund, the S&P 500 ETF, now has over $1 trillion invested in it.
Another reason Jane Street has done so well is that they're suited towards volatile markets.
Their revenues exploded during COVID and Trump's tariff uncertainty because chaos suits them.
In times like this, people become desperate to move their money around—to buy and sell—and will pay a premium to get their trades done quickly.
This means more mispricing, wider bid-ask spreads, and more money for Jane Street.
At the same time, they can eat everyone else's lunch as traditional banks pull back from volatility to protect their balance sheets.
The final reason is the company's culture.
Jane Street is a very paranoid company—one of the few that actively prepares for catastrophic events like pandemics.
For example, they invest many millions each year into put options, which are essentially insurance against market downturns.
They also keep a 15% buffer of trading capital in case more money is needed to trade.
All this means that in moments of crisis, they're still around to provide liquidity and make money while other companies run out of steam.
They also have a reputation for hiring wildly clever undergrads and paying them wild amounts of money.
By paying interns more than most heads of state, their talent pool stays strong.
All this is great, but Wall Street is littered with the carcasses of firms that thought they couldn't fail.
For Jane Street, their problem could be overreach.
In recent years, they've started to take their money to Silicon Valley.
Since 2020, they've backed 31 startups, many of them in AI and decentralised finance.
On the one hand, Bloomberg reports that their investments in growing businesses are driving sizable new returns.
But on the other hand, investing in a company's growth is the complete opposite of the high-frequency trading that made Jane Street rich in the first place.
If they want to take on these positions, which take years to pay off and can go catastrophically wrong, they might need to change their attitude towards risk.
The recent loss after backing Leopold Aschenbrenner's firm, Situational Awareness, is illustrative of this.
Jane Street exposed themselves to significantly more danger than they're used to.
And their $15 billion loss is on the level of some of the biggest trading defeats in history.
In light of this, the Fed and Bank of England are starting to scrutinise how exposed big banks are to Jane Street's books.
So Jane Street isn't infallible, and in fact, many would like to see them fail.
Over the next few years, we'll see whether they manage to stay obscenely wealthy or have to take a step back and reconsider their ambition.
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