If a high-frequency trader (HFT) is talking about ‘Chicago style’ and ‘New York style’, they’re not talking about pizza. There’s a huge cultural difference between most HFTs founded in those two cities; I’m a trader that’s worked on both sides and, if you want a job with an HFT firm, you need to know the difference
HFTs, if you’re not aware, are firms that rose to prominence as markets turned electronic, taking advantage of their superior tech infrastructure to optimize their trades at a microsecond level and capitalize on momentary market inefficiencies. These days, they do a lot more than just HFT, and hold some of their positions for days at a time, but HFT persists as a catch-all. Some firms prefer to be known as electronic market makers or prop trading firms.
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Chicago-style HFTs are also known as Amsterdam-style, as some of the trading firms in the city like Akuna Capital were spun out of the Dutch trading houses like Optiver. The Chicago-style HFT firms were mostly founded by former pit traders, people with strong intuition on where the market was going. They’d then hire a bunch of programmers to make trading strategies in line with their directional bets. DRW’s founder Don Wilson, for example, started out in the pits. Jane Street is another notable Chicago-style firm, as is Susquehanna, where Jane Street’s founders started out.
A Chicago-style trading firm doesn’t usually care that much about your mathematics and programming skills beyond your ability to do mental calculations quickly. You find that people at these firms are very good at game theory, poker and chess. After all, Jeff Yass of Susquehanna started out as a professional gambler.
New York-style is very different, as those firms are usually founded by mathematics graduates from Ivy League schools and the likes of Cambridge (Trinity college is a particularly big talent pool for HFTs). They see the markets as a data science problem to solve and are very scientific in their approach. They do a lot of modelling, and have more of a focus on statistics and machine learning. These kinds of firms include Tower Research and Hudson River Trading, which spun out of Tower.
They’re particularly fond of mathematics Olympiad winners. Chicago-style firms appreciate them too, but you can probably get an internship with some New York-style firms just by virtue of having an Olympiad medal.
The interview process of Chicago and New York-style HFTs
The two types of HFT have very different interview processes, as well as different cultures.
Chicago-style trading firms tend to have much quirkier processes, the kind of thing Michael Lewis wrote about when talking about Sam Bankman-Fried’s Jane Street interview. The actual mathematics you need to pass these interviews is stuff you probably learned at high school or in your A-levels, but they’ll put you under pressure, and you’ll have to be creative and show an understanding of markets and risk.
At Jane Street, for example, you might be asked a question on making a market at a particular price under intense time pressure. If you get it wrong, they’ll tell you, but the real test comes when they ask you a follow-up question correlated to whether or not you got the last question right. The follow-up to a wrong answer is inherently trickier, but they’re testing how you respond to adversity and, if you get it right, you can come off as even more impressive.
New York-style trading firms have simpler processes that require more technical knowledge. Their interviews purely involve programming and mathematics questions.
Is one kind of HFT better than the other? Not necessarily. Chicago-style firms may be stereotyped as being less intellectual or having fewer smart people but, to be honest, they make just as much if not more money. Jane Street made over $10bn in one quarter earlier this year, after all.
Kiran Kalin is a pseudonym
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Source: efinancialcareers.com
