Madoff had a lot of employees too. But it was an empty box. Sometimes expenses are necessary to fool people. I was sarcastic about MA but I don't believe they have a sophisticated model. Their profit margin is so small that the smallest change can put them in heavy losses. Trading is buying and selling like any business. Profit margin is the most important ratio in business, not turn around. The final goal is to make as much money as possible. 36$ profit for a trade with a value of probably thousands of dollars per trade gives a profit microscopic small margin.
5.3MM trades/day. 190MM net income and 750MMish in revenues. the 750MM is their trading pnl. They spent 550MM on technology, general and administration, and compensation.
HFT always has small margins but the law of large numbers means you also get a very smooth curve. They have a large number of strategies and therefore the smallest change might kill a strategy or two but won't kill their business model. Their profit margin is quite high as I seriously doubt they have much equity, it's not needed for HFT.
I'm surprised by that bit. Don't they need massive amounts of capital to be able to trade into every opportunity they find? Stocks for example don't offer a lot of leverage.
Their holding time is very brief, freeing up the capital quickly. As opposed to longer term funds which are in several deals all at once.
Yes but we're talking about opportunities in presumably thousands of instruments in parallel, and I doubt this is always limited to small lots.
Financials from 2013 state they had about 500MM in equity and a balance sheet of about 2.5Bn in assets. As a designated market maker and as a registered broker dealer they can get away with MUCH lower capital and margin requirements than retail traders or institutional customers .
I hadn't thought of that part, thinking "portfolio margin" was as leveraged as it could get. Thank you for clarifying!
they became serious player after hiring this guy, https://www.linkedin.com/pub/rosen-kralev/9/7b7/b24 Honors & Awards Gold Medal International Mathematical Olympiad, Tokyo 2003 July 2003 Gold Medal International Mathematical Olympiad, Athens 2004 July 2004 Gold Medal and Perfect Score International Mathematical Olympiad, Mexico 2005 July 2005 First Prize, Perfect Score and Special Award Russian National Mathematical Olympiad 2004 March 2004 First Prize Russian National Mathematical Olympiad 2005 March 2005 First Place Bulgarian National Mathematical Olympiad 2004 May 2004 First Place Bulgarian National Mathematical Olympiad 2005