FTX Scandal: When Trader Sam Bankman-Fried Sparked High-Frequency Trading

Posted Nov 30, 2022 12:58 PMUpdated Nov. 30, 2022, 12:59 p.m.

Sam Bankman-Fried began his trading career at high frequency trading firm (THF) Jane Street. The founder of FTX operated on exchange-traded funds (ETFs), one of the specialties of THF, launched in 2000. This quantitative, technological and ultra-fast trading firm is today among the leaders of Wall Street that are Citadel Securities and Virtu , and employs 2,000 people. The physics student from the Massachusetts Institute of Technology (MIT) had done an internship in 2013 in this renowned firm. He passed the test and was offered a job after graduation a year later. He stayed 3 and a half years at Jane Street (2014-2017).

Sam Bankman-Fried left a good image there, that of an employee devoted body and soul to his company. A workaholic with virtually no time off, this “market soldier monk” trader led an ascetic life and donated half his salary to charity. Far from the incredible speculative bets that would sink his trading firm, Alameda Research, a few years later, at that time he was implementing very supervised trading strategies, formalized with great concern for risk control. It is the trademark and the culture of his employer. Jane Street wanted to be unbiased on the trend (rise or fall) of an asset or a market. The THF struggled to find meaningful statistical links in the markets. At the end of the day, he had to hold a limited or even zero stock of assets on certain markets that were too volatile, to reduce his risks. These lessons, which he still applies, Sam Bankman-Fried will have forgotten them at FTX.

Crypto Goldmine

Caroline Ellison was also present at this time at Jane Street in equity trading. It was a default choice because she had never really considered working in the financial markets. She stayed only a year and a half.

She then embarked, in March 2018, on the crypto adventure with her colleague Sam Bankman-Fried. Before creating his trading firm (Alameda Research), he had also considered various alternatives, journalism, foundation, technology start-ups… Sam Bankman-Fried started trading cryptos when bitcoin broke its “glass ceiling and exceeded $10,000.

His former employer Jane Street launched into this asset class at the same time. This THF, which then employed 600 people, was the second major trading firm after DRW in 2014 to anticipate the full potential of cryptos. Bitcoin offered a new alternative source of profit to stocks and in a market far less competitive than Wall Street. Price inefficiencies, volatility, lack of regulation, the Wild West of cryptos has proven to be a gold mine for the most skilled traders. Sam Bankman-Fried has long been one of them.

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