In the annual CME Group Commodity Trading Challenge, college and university teams compete for returns in a simulated trading environment, but the global competition and market forces are very real.
Sathya Ganesan wanted to compete in the 2011 Trading Challenge. Then a weekend MBA student at the University of Chicago, Ganesan found the contest through the CME Group website, but had just missed the deadline to enter. When the 2012 contest rolled around, he was ready, along with a team of three fellow U of C MBA students he recruited to join him on a team. His patience paid off when the team beat out 164 competitors to win the 2012 challenge, chalking up a 53 percent return in a month of trading gold and crude oil futures.
So Ganesan’s first piece of advice to any undergraduate or graduate students who might want to test their abilities in the electronic trading competition? “Register early.”
The 2013 Commodity Trading Challenge begins February 12, but registration is currently open to any college or university team looking to enter. Two undergraduate and two graduate teams are permitted per school.
“An Experience They Can’t Get Anywhere Else”
The contest started more than a decade ago as a way of introducing young would-be traders to the world of commodity markets by letting them get hands-on experience trading volatile commodities like gold and oil. The contest takes place on a trading platform provided by CQG, a provider of electronic trading platforms and technical analysis to professional traders.
Teams start with a simulated account balance of $100,000 to trade over the preliminary round, measuring their returns against those achieved by other teams. Teams finishing in the top 10 percent move on to trade for two weeks in March in the Championship round with a simulated account balance of $250,000. Until this year, the competition has allowed trading in two commodities – gold and crude oil. In the 2013 competition, corn will be added to the mix – something that will likely make the competition even more challenging. Corn markets continue to feel the effects of the worst U.S. drought in more than 70 years.
Another returning sponsor this year is Dow Jones Newswires, which provides real time market moving information for the energy and commodity markets which competitors can view within the CQG platform.
CQG became involved with the competition 10 years ago after Stan Yabroff, a product specialist there who had spent 15 years on the floor of the New York Mercantile Exchange (NYMEX), learned of it and recommended that the firm provide support.
“I saw this as an opportunity to give college students a trading experience, and I thought it was invaluable,” Yabroff says. “Any time you can give college students an experience they can’t get anywhere else, that’s a home run.”
Along with the trading platform, CQG provides complete 24-hour IT and trade-routing support, and works alongside CME Group to update rankings and share the latest standings via social media channels throughout the compettion. “It’s a full commitment,” says Yabroff.
Strategy and Risk Tolerance
The fact that the competition is strictly for college and university teams and has a championship session that extends for two weeks in March perhaps makes the Commodity Trading Challenge the equivalent of March Madness for business and economics students. But Ganesan says the similarities to the NCAA basketball finals go even further.
“If you see the way the competition is structured, people are competing really hard,” he says. “There’s an excitement of just the format, that it’s done electronically and you’re competing against your peers.”
Ganesan, who graduated from his MBA program last month, works in research and development for Intel, the computer chip maker, in Chandler, Arizona. As a weekend MBA student, he would fly from Phoenix to Chicago every Friday, then back to Phoenix on Sunday. But that did not hinder his ability to communicate with teammates throughout the competition. Through phone calls and screen-sharing software, he was able to keep in close touch with his teammates in Chicago about trading strategy. The group used the same strategy throughout the competition, something Ganesan says was as valuable as the strategy itself.
“I think you stick with your strategy and that’s the most important thing,” he says. “We planned it out before, what we wanted to do, and we did not change from that.”
Byron Traylor, an undergraduate member of last year’s Chicago State University team that finished runner-up in the competition, says establishing his team’s risk tolerance was a key component of their success.
“Know how much you’re willing to risk,” he says. “If you know that going in, you’ll always be safe. If you’re willing to risk $1,000 for a $3,000 return, then stick with that.”
Like Ganesan, Traylor discovered the competition when searching one day for other market information. At the time, he was taking a class on derivatives, and decided to recruit three classmates and a finance professor to be their faculty advisor for the competition.
Testing the Waters
Though the top two teams in last year’s competition were from Chicago, their geographic proximity is only a coincidence. More than 630 students from 90 universities across the globe participated in the 2012 competition, including schools from Germany, Greece, England, India, Canada, Malaysia, and Poland. Members of the winning team receive a cash prize, and an invitation to Chicago to participate in CME Group’s new Day of Market Education.
The competition has proven to have even greater benefits than the cash prize. Several participants over the years have gone on to work in the derivatives and energy industries for firms including BP, Valero and MBF Clearing.
Curt Zuckert of CME Group, who has been involved in the competition for several years, says the experience gained may be most important for anyone participating.
“It’s interesting to see students do well, but it’s also valuable when they make errors in judgment,” he says. “Instead of real money, they gain experience and maybe only get their egos bruised.”
Traylor, now a graduate student in applied mathematics at DePaul University and working toward a doctorate in economics, thinks that for anyone who is curious about trading, or may want to test the waters before embarking on a career, the trading challenge is worth considering.
“The experience is phenomenal. You get all the experience of how it feels and how the market works without the risk – without losing your shirt or someone else’s capital,” he says. “If you think you’re a good trader, the competition will prove you right or wrong.”