Simulation-based learning is widely applied in the fields of aviation, sports and medicine to allow for real-world practice to master a skillset. Similarly, electronic trading simulations provide unique opportunities to apply financial and statistical analysis in a hands-on environment for trading futures and options without the risk of losing money.
Trading simulation-based learning on the Rice University campus began this past fall as a guided extracurricular effort through the Chicago Mercantile Exchange Group (CME Group) University Trading Challenge. Rice’s Center for Computational Finance and Economic Systems (CoFES) had five student teams, made up of 15 undergraduates and 5 graduate students, who participated in the challenge.
The strong student interest in the experience led the late John Dobelman, former professor in the practice of statistics and associate director of CoFES, to design a private trading challenge with CME Group’s education manager Bob Guardi for simulated futures and options trading for two of Dobelman’s spring semester courses. A total of 26 students participated in the Quantitative Financial Analytics (STAT 482/682) and Market Models (STAT 486/686) classes.
To amplify student knowledge, Dobelman and Guardi organized instructional lectures on futures, trading on the CME simulator, trading psychology, importance of key economic events and economic calendars, introduction to options and option strategies, option Greeks, the CME Group Volatility Index (CVOL), and common tools for option analysis. Students were then assigned a virtual account of $100,000 so that they could trade CME Group’s top products across all six asset classes, including Bitcoin and Micro E-mini futures.
The private challenge started on February 5 and closed on April 14. To keep interest high, Dobelman invited Nick Howard, the owner and CEO of Bantix Technologies, to introduce QuickStrike, the company’s options analysis software targeted for the futures options market.
A special lecture on March 22 also featured a panel of software and experts in systematic trading. Panel members included Max Lee, MS, CFA, of Bank of America; Rangan Padmanabhan, CFA FRM of Nauticus Robotics, Inc.; Xifan Wang, Ph.D. of Westwood Holdings Group, Inc.; Nick Howard, MBA, of Bantix Technologies & QuikStrike; and Stan Yabroff of CQG, Inc.
Will Doherty, a junior majoring in both Mathematical Economic Analysis and in Business with a minor in Financial Computation and Modeling (FCAM), participated in both CME Group University Trading Challenge and Dobelman’s private challenge.
Doherty learned a lot in the first challenge trading crude oil futures (CL), particularly on when to sell. Benefitting from lessons learned, he used the same strategy trading on volatility using stochastic indicators to execute a total of 15 trades in palladium (PA) and gold (GC).
“Gold was particularly underpriced at the time. A few days later, it became clear Silicon Valley Bank was going to collapse and gold skyrocketed. This time, I exited the position and realized the gain,” said Doherty, who was the highest performing trader in the private challenge with a 98% gain.
This year Doherty was also heavily involved in the Rice New Energy Fund (RNEF), a student-run fund that invests in energy transition focused companies with $200,000 of capital raised from donors.
Doherty says he is interested in a career in quantitative finance and in expanding his knowledge in trading using alternative data sets for optimal decision making and risk management.” This summer he is an intern at Yaupon Capital Management in New York.
“Trading is not for the faint of heart. For every great story, there are a lot more stories of ups and downs,” said statistics doctoral student Arnold Muchatibaya. “Often times mistakes are the things that give you the best education.”
Muchatibaya, who is also interested in a career in quantitative finance, already has his Financial Risk Manager (FRM) certification, a master’s degree in statistics from Michigan State University and a master’s in computational engineering from Finland’s LUT University. He had a 52% gain with 124 options trades in Micro E-mini futures on the S&P 500 (ES) and Nasdaq-100 (NQ).
“In today’s digital world, there is so much information available that it’s difficult to aggregate,” said Muchatibaya.
Mohamed Abead said he came into the class with little to no experience in trading but navigated his way to place third with a 42% gain. He made 70 options trades between crude oil futures (CL) and natural gas (NG).
Abead, a junior majoring in computer science, is interested in software engineering in fintech. He is also a co-founder of Rice’s Blockchain Club.
“I really liked using the CME trading platform. Initially, I used it to track daily commodities and buy and sell for fractional profits. Then I switched to a longer-term strategy and bought and sold according to economic reports and the news,” said Abead. This summer he will be a software engineering intern at Goldman Sachs in Dallas.
Additional students who completed the challenge with positive earnings include Zouyi Sun, Ethan Karlovsky, Anika Bjerknes, Irpan Abdurahman, Gustavo Chavez III, Samir Walji, and Yuliia Suprun.
- Shawn Hutchins, Communications and Marketing Specialist
