The map — who is who

The course has spent five modules on markets. This one is about the people in them: what the major firms actually do, how they make money, and how they are paid.

The single most useful organising question is not what a firm trades. It is:

Where does the money come from?

Answer that and almost everything else about a firm — its risk appetite, its size, its secrecy, how it pays people, whether it wants your money — follows.

A note on these facts before you rely on them

This module is different from M1–M4 in one important respect, and it is worth stating up front rather than in a footnote.

Everything so far was verifiable: order-book mechanics, derivations you can check, market data you can download. This module is largely about private companies that do not publish figures. Headcounts, revenues, assets under management and pay are reported second-hand, are frequently stale, and are sometimes strategically leaked.

So: the structures here are durable and worth learning. The numbers are approximate, dated to 2026, and will drift. Where a hard figure appears it is either from an audited public filing — Virtu in M5.2 is the one genuinely open window — or explicitly flagged as a reported estimate. Treat any specific number in this module as an order of magnitude, and check it before you quote it to anyone.

The four revenue models

   who pays them            for what                    so they optimise
   ─────────────────────────────────────────────────────────────────────────
   MARKET MAKERS
   the market itself        the spread, earned on       VOLUME and
   (no outside investors)   enormous volume             VOLATILITY

   ASSET MANAGERS
   investors                a % of assets held          ASSET GATHERING
                            (management fee)            and not being fired

   HEDGE FUNDS
   investors                a % of assets PLUS a share  RETURNS
                            of profits                  (and keeping capital)

   BANKS (sell side)
   clients                  commissions, spreads,       CLIENT FLOW
                            fees for intermediation     and balance sheet

Those incentives are not cynical readings; they are the design. An asset manager charging 0.05% on an index fund genuinely should be maximising assets, because that is the service. A hedge fund charging 20% of profits genuinely should be maximising returns. Problems arise when the incentive and the marketing diverge — which is most of what M5.5 is about.

Sell side and buy side

The oldest division in the industry, and the vocabulary is used constantly:

   SELL SIDE                        BUY SIDE
   banks, brokers, dealers          funds, asset managers, pensions
   ─────────────────────────────────────────────────────────────────
   intermediate: make markets,      take positions with capital they
   execute, research, underwrite    own or manage
   paid by clients, per trade       paid on assets and performance
   Goldman, JPM, Morgan Stanley     Millennium, Fidelity, CalPERS

The names are historical — the sell side "sells" securities and services to the buy side, which "buys" them. Market makers sit awkwardly across the line: structurally sell-side (they intermediate, they provide liquidity) but organised like the buy side (proprietary capital, no clients, performance-driven pay).

The three models this module distinguishes

The roadmap's self-assessment asks you to tell three apart. Here they are side by side; the next three lessons take one each.

                  MARKET MAKER        POD SHOP            SINGLE-STRATEGY
   ─────────────────────────────────────────────────────────────────────────
   e.g.           Jane Street,        Millennium,         Renaissance,
                  Citadel Securities  Citadel, Point72    AQR, Bridgewater

   edge           immediacy — being   MANY uncorrelated   one deep edge,
                  fastest and tightest small edges, run    applied at scale
                  at huge volume      by separate teams

   capital        own money           investors' money,   investors' money
                                      allocated to pods

   holding        seconds to hours    days to months      days to years
   period

   what kills it  a bad regime, a     correlated pods,    the edge decaying,
                  technology failure  crowded unwind      or capacity

   risk model     get flat, fast      hard stop-losses    portfolio-level
                                      per pod

   scales with    volume + volatility HEADCOUNT           the edge's capacity
                                      (hire more pods)    (usually limited)

The row that most repays attention is the last one. A market maker grows by trading more volume; a pod shop grows by hiring more teams; a single-strategy fund often cannot grow at all, because its edge has a capacity limit — precisely the Q^1.5 cost scaling of M1.5 and M2.7. That one difference explains why some of the best-performing funds in history are closed to new money while some mediocre ones manage hundreds of billions.

Where the earlier modules land

Everything in M0–M4 was describing the environment these firms operate in:

   M0.4  the spread              →  what a market maker earns          (M5.2)
   M1.2  adverse selection       →  what it costs them                 (M5.2)
   M1.7  the maker's edge        →  their P&L, as an equation          (M5.2)
   M1.5  impact and capacity     →  why fund size is capped            (M5.4)
   M2.7  multiple testing        →  why most "edges" aren't            (M5.4)
   M3.6  drawdown, not variance  →  why pods have stop-losses          (M5.3)
   M4.6  regime change           →  what ends a strategy               (M5.3)

You already know how these businesses work. M5 is mostly putting names to them.

Source: the roadmap’s picks are podcasts rather than books, deliberately — Odd Lots (Bloomberg) and Flirting with Models (Corey Hoffstein) are where practitioners explain their own business models in their own words, which no textbook does. Start with any Odd Lots episode featuring a market maker.