Q&A With Winners of the 2013 Commodity Trading Challenge

CME Group Commodity Trading Challenge

Trading has its own collegiate tournament in March, and last week it crowned a champion. The CME Group Commodity Trading Challenge came to a close March 18, and for the second time in three years, a team from Rice University came in with the best returns after four weeks of trading.

The electronic trading competition allowed teams of undergraduate and graduate students to trade Crude Oil, Gold and Corn Futures in a real-time, simulated environment on CQG’s trading platform. Nearly 1,500 students from more than 320 schools in 26 countries participated in this year’s challenge. The top four teams are invited to CME Group’s day of market education April 12, which will feature presentations from industry experts and networking opportunities with top firms.

The competition began in February with a preliminary round, with teams in the top 10 percent moving on to the championship round in March. In the latter stage, teams are given a simulated balance of $250,000 to trade. The top teams were as follows:

Rice University , Houston, Texas: $372,325.00

Polytechnic Institute of NYU, Brooklyn, New York: $319,625.00

Escuela de Ingenieria de Antioquia, Antioquia, Colombia: $317,640.00

Georgia Institute of Technology, Atlanta, Georgia: $316,920.00

You can view the full competition results here.

We caught up with Rice senior and team leader Robert Margolis following the competition to get his team’s perspective on the competition, and what strategy they implemented to outperform their closest competitors by more than $50,000 in returns.

 

What was your strategy during the competition?

Our team strategy was first to focus all of our efforts on the WTI crude oil market. We have had internships in the energy and financial services industries, and we thought that interpreting news and trading based on our analysis of the WTI market would be something that we could understand and that would be relevant to our future careers.

Second, our team philosophy was that there’s no one right way to speculate. Some people feel most comfortable trading algorithmically, whereas others might prefer technical analysis or fundamental analysis. We preferred to focus on fundamental analysis as well as perform some technical analysis. For fundamental analysis, we read the CME energy market commentary and the daily energy market reports as well as Bloomberg articles on WTI storage reports. We combined that with looking at support and resistance levels to try to figure out where WTI prices would go over our trading time horizon of the next 1-2 days.

 

Did you build an algorithm or watch the markets throughout the trading day?

We watched the markets throughout the day. For instance, when I woke up in the morning, I would visit the CME WTI page to see how prices had changed. In the middle of the day, we would log into CQG’s electronic trading platform that CME Group gave us access to in order to see how prices have changed, to view the most recent WTI chart, to read the latest news in the energy markets, and to make trades. During the evening hours, we would again check prices on CQG’s electronic trading platform.

Additionally, we would read the CME Group’s online Recap Energy Market Report to get a sense of how our short or long positions had worked out and what factors, such as Hugo Chavez’s death or stronger than expected U.S. oil production, affected our results.

 

You registered without an advisor, did you use a faculty advisor or CQG’s training and helpdesk to become educated in the parameters of the trading simulator?

We called CQG’s helpdesk so we could become more familiar with the technology and its many functions. For example, CQG’s helpdesk guided us through how to set up the WTI price chart and how to place stop orders to limit the downside risk on our trades.

 

Your team won by $50,000 over the closest competitor. That’s a pretty wide margin. Is there an opportunity you saw other teams missing that you took advantage of?

I’d say we did a couple of fundamental and technical things well. First, we found out recent historical support and resistance levels and got short when WTI approached its recent resistance levels. This worked because it complemented our neutral to bearish fundamental perspective based on overwhelming U.S. crude oil production from the Baaken and the Eagle Ford Shale.

Also, the oversupply of oil at Cushing, Oklahoma has led to higher U.S. oil inventories. We noticed that U.S. oil inventories had climbed for 6 weeks in a row, and following the trend we made two successful short trades before the next two inventory reports, which likewise continued to show higher than expected crude oil supplies.

Finally, after Hugo Chavez’s death, we didn’t overreact and immediately close our short positions. We knew that WTI is currently more reflective of the U.S. crude market than the global crude market because WTI prices have disconnected from Brent prices, and we had read energy market commentary by CME Group which explained that the Venezuelan energy supply consequences of Chavez’s passing would be felt years in the future rather than in the next week or two.

 

You’re starting to make this a tradition at Rice. Did you know Rice also won the Trading Challenge in 2011?

I do know that. We know a couple of the Rice students who won the Commodity Trading Challenge in 2011, and a good friend’s team finished fifth in 2012. I think it reflects that a lot of students at Rice are pretty well educated about commodities and energy and have benefited from being in a city where there are a lot of job opportunities in oil, natural gas and power trading.

 

What would your advice be to future teams who might want to take part in the competition?

Go for it. Learn to experiment with the CQG technology, follow the markets, make trading decisions and find out if commodities trading is something you are skilled at and really enjoy.

 

Would you ever do this professionally?

Definitely. I’m graduating from Rice in May and am starting full time with Citigroup Commodities in June, and my teammates are hoping to enter the financial services or energy industry after they graduate.

Read more about the Trading Challenge and past winners here, and see a map of the 320 participating schools here.

About the Author

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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  1. Commodities News on Apr 5, 2013 at 11:33 am:Reply

    Thanks for sharing this article. This is very nice.

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