Trading Simulation: A Student’s Experience

Hello, George again. This is a recount of a trading simulation that happened at Warwick.

First things first

So this story began when I received an invite from one of the exec of Warwick Investment Club to a trading simulation, I looked at the event on Facebook and the cover photo was a still from the film Trading Places; I was pretty excited. I hadn’t used any technology simulating a trading floor before so this would be my first time, likewise for the other two members of my team, so we weren’t quite sure what was in store for us.

The day came around and of course we happened to go out the night before so we were feeling slightly rough but pretty good all things considered. I seemed to be the only one who was wearing a full suit but oh well, better to be over dressed than under dressed. The man running the event then gave everyone, about 30 of us, a quick talk about what we were going to be doing.

Time to get started

He explained that there would be two parts to today: one part would be hedge fund, the other part sales trader simulation. For the sales trader side, the team would select one member to be the trader, the other two would be sales traders and the trader would relay figures to the sales trader upon demand. The man in charge, Marcus, explained that the information a sales trader would need from the trader is the buy and sell split which are the prices the sales trader would be willing to buy and sell at, once given a stock and a volume. Marcus said the key is to make attractive offers compared to the exchange price, the price at which the hedge fund can buy and sell the stock without the help of the sales traders. The reason for this is because if it isn’t competitive compared to the exchange then why would they use that team? Meaning no clients for that team! He also noted the importance of minimising exposure of the sales trader, meaning once they have bought from a hedge fund, they must then sell as soon as possible or else they are a sitting duck. My team would know full well just how much of a sitting duck you could become.

It begins

So we get into our seats in front of the computers, log in and set up skype, however truth be told I still wasn’t 100% about what was going on and nor were the other two members of my team. As there were some second years present, which had done this very same simulation last year, I asked for their help and got some quick tips, one of them was to shout the loudest in the room. So the simulation started and within a couple of minutes my screen was filled with requests for quotes, the simulation didn’t use real life stocks but rather parallels to them, having a mix of equities and commodities.

The shouting immediately started, when asked to give a quote the sales trader (me in this instance) would shout at the trader (my Italian friend Alessandro) the details of the quote required, the trader would then give figures and the sales trader would tap them in and give a two way offer to the hedge fund. The sales trader doesn’t know whether the hedge fund will buy or sell so you have to make sure both ends of the quote are competitive. Once we had given out a few quotes, hedge funds started buying and selling, meaning we started buying and selling from them. The volume in the room then significantly increased. Some poor guy sat next to Alessandro called Hector was having one hell of a time, his sales traders were swearing and blinding at him like there was no tomorrow. They were demanding figures form him at lightning speed, and then I looked around and realised that I was doing the same and for the few hours that this simulation occurred we weren’t fellow university students, oh no, we were sales traders trying to get a job done.

Give me a price!

Our team then had a bit of a disaster, we were coming a bit unstuck when getting rid of our exposure, as it became the sole responsibility of our trader and he was well, rather busy. Furthermore we didn’t clock on to the importance of using Skype to our advantage or actually walking into the other room to negotiate loudly with the hedge funds. So whilst we were losing money rapidly due to buying something that was fast going downhill, we managed to make another big error.  When asking for a two way offer on one of the options either Alessandro or I made the mistake of reading off the wrong numbers as I entered a value in the region of 1500 where as it should have been in the region of 150, cue massive loss and the session being doomed to disaster. Marcus found it pretty funny and to be fair to him it was. I then made use of Skype and tried as hard as I could to find someone in the other room who was as ignorant as me to offload the problem at an equally ridiculous price. I managed to do so for a while; the stock was called JEFF so my insistence over Skype that “JEFF IS HOT YOU ARE AN IDIOT IF YOU DON’T BUY” mildly paid off. All of this was happening whilst the room was filled with “WHERE ARE THOSE NUMBERS HECTOR, WHY ARE YOU SO SLOW??? WHAT THE HELL ARE YOU PLAYING AT!!?!?!?!” which was all good fun. 

Half time

That session came to an end and we had a quick break, I had a laugh about the error and found the person who profited from it and we had some jokes about it. Now came the part where my team simulated a hedge fund, each member could be a portfolio manager or a trader. Two of us went for trader and one portfolio manager. And then we got ready and the second half of the day began.

Second half

Right off the bat I know we would do better at this side of the day, having an understanding of what goes on at the other end of the phone. But as soon as we started, something pretty funny happened. A second year from the other room stormed in and grabbed the microphone at the front of the room and asked who Team 3 were, a group of three put their hand up and then the second year, who invited me to the event, said “You just asked for a quote of 50 STIR and it costs nothing for 1000, you have 20 million to play with so grow some balls!!”. Those might not have been his exact words but they were very much to that effect, and with that everyone in the room started buying like crazy.

My initial premonition of us doing better came true, we were having a lot more fun with this side, at times being impulsive and at times calm and calculated, Marcus noted the ups and downs in emotions that we had. Our main victory came when we sold a huge amount of STIR for a half decent price, the main cause for elation was the way that about ten seconds later a “News Announcement”, which occurred every 15 minutes, resulted in the price of STIR plummeting. So we avoided a bombshell there and as a result we were all absolutely elated, we were really getting into the swing of things when something rather odd happened.

Buy my JEFF

Whenever we would ask for quotes we would always get back quotes for JEFF because it turned out everyone in the other room had got sort of bored and disgruntled so decided to start a fire sale of JEFF. It is safe to say that the price plummeted and it was pretty funny to see people from the other room striding in, preaching the gospel of why JEFF deserved to be sold. That happened with about 15 minutes to go, it was clear that most people in the other room had an absolute mare and so had just started messing about really, which was fair enough as everyone was pretty tired by that point.

Full time

When Marcus did a roundup of everything, he showed us the biggest profit and loss made by a team. We did reasonably well which was pretty nice and the biggest loss was hilarious. To give some context, by the time we finished our sales trader session and having made the eror that we did, we were at about 8 million loss. The biggest loss overall by one team was 154 million. So yeah, comparatively we didn’t do that bad at all!

The main thing I took away from the event was the importance of client relationships because it really did happen in the simulation; we found ourselves as a hedge fund always going to the same sales trader and if a team did something we didn’t like we then would never use them again. So  to summarise it was a great event and if you ever get the chance to go to a simulation like it I would strongly recommend it, be sure try and do a little bit of research and make sure you don’t price things wrong!!

George Wynne

George Wynne

Currently studying at the University of Warwick.
Also Head of Alternative Investments and Head of External Relations.