FTX scandal: When trader Sam Bankman-Fried sparked high-frequency trading

Written Nov 30 2022 12:58Updated November 30, 2022, at 12.59.

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 THF’s specialties, launched in 2000. This quantitative, technological and ultra-fast trading company is today among the leaders of Wall Street, which are Citadel Securities and Virtu , and employs 2,000 employees. Physics students from the Massachusetts Institute of Technology (MIT) had in 2013 done an internship at this renowned company. He passed the test and was offered a job after graduation a year later. He spent 3 and a half years on Jane Street (2014-2017).

Sam Bankman-Fried left a good image there, that of an employee who dedicated body and soul to his company. A workaholic with virtually no time off, this “market soldier-monk” trader led an ascetic life, donating 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 implemented highly monitored trading strategies, formalized with great concern for risk control. It is his employer’s brand and culture. Jane Street wanted to be unbiased about the trend (up or down) of an asset or market. THF struggled to find meaningful statistical connections in the markets. At the end of the day, he had to have a limited or even zero inventory of assets in 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 gold mine

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

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

His former employer Jane Street launched in this asset class at the same time. This THF, which employed 600 people at the time, was the second major trading company 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 inefficiency, volatility, lack of regulation, the wild west of cryptos has proven to be a goldmine for the most skilled traders. Sam Bankman-Fried has long been one of them.

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