- investment funds
to turn your money into more money
this is the primary business conducted by hedge funds
(the following services are business-to-business)
order routing
(used by online brokers like TD Ameritrade or eTrade and the like)
so when small-time investors (possibly like you) go to trade thru^, those brokers ask Citadel to execute those trades
market making
so if you want to buy or sell, say, Apple stock, you can buy or sell from Citadel
it is a registered market maker in all the major U.S. exchanges, and in overseas exchanges
(though, this is not a service you pay for, Citadel competes in the markets with other market makers to take the other side of any trade)
Privately held
14% of U.S. consolidated volume in equities and 30% of U.S. retail equities volume
this means, 14% of all trades in U.S. equities are done by Citadel
and roughly a third of all trades by the average person (such as through an online discount broker such as TD Ameritrade or eTrade) are executed by Citadel
20% of U.S.-listed equity-options volume
the story here is similar to that of stocks
(this makes them one of the biggest hedge funds)
(and they do pretty much everything related to exchange-listed anything)
for a hedge fund, it actually has a long history:
It is one of 3 percent of hedge funds that have survived more than 20 years
Ken Griffin in his dorm room at Harvard trading bonds
this was in 1987, with 265k
Started with 4.6m USD (in 1990)
within 8 years had over 2b in assets
2008 crisis and present-day
its main funds lost over half their value
finally broke even in early 2012
April 2015, Ben Bernanke joined Citadel part-time
favorable returns on its funds
those with more money have pulled out of the markets (George Soros) or have done worse
Citadel’s flagship funds earning around 15% as compared to returns less than 10% for others
- trading in China
it is one of the few firms approved to do this, and is looking to build recognition there
it was the first to do so, back in March of last year
though, this past August, its account there was frozen amid a probe into manipulative trading (shorting)
international interest rate swaps market
long dominated by New York bankers, with transactions done over the phone
Citadel is looking to open up this market, something regulators have failed at before
from my time at Allston
there is a desk that has dinners with insiders of the companies it trades
somehow, they bought just before the price would go up, and sell right before it went down
but hey, regulators haven’t done anything yet
the culture at a hedge fund is actually different from that at a bank
at a bank, if you lose money, you lose the company money
at a hedge fund, losing money means losing the founder’s money
(and the founder will be upset with *you*)
so, this mentality is reflected in what their recruiters say
if you get paid X, you have to earn more than X
(otherwise, you’re fired)
and another thing that they do
if Citadel has a bad quarter, the lowest 10 percent get cut
Other rival investment firms such as DE Shaw and Fortress
In the market making arena, KCG
Previously known as Knight Capital, and these guys caused one of those flash crashes and lost themselves a bunch of money
They are the largest US equities market mkr
And then large banks and other buy-side
Citadel is doing well on its returns and so far has had good PR
Regulations
has big enough legal and lobbying teams that regulations don’t matter
it actually in favor of these newer regulations and more transparency
Citadel maintains hold on the market and financial industry is slow to change
they are likely to keep on doing what they are doing, and continue doing well
the worst case that seems the most likely to happen is some sort of drastic market crash due to a tech bubble or something else random
but due to its strong risk management, they are likely to mitigate any losses
