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Global Energy Management students trade crude oil, gold and corn futures

April 12, 2013

Teams of GEM students pooled their collective knowledge of the energy sector as they recently competed in the CME Group Commodity Trading Challenge. It was the first time CU Denver Business School has participated in this event.

The students had an opportunity to trade commodities in real time and learned first-hand the trading techniques used for crude oil, gold, and corn futures. Although they didn’t trade with real money, they were still able to trade on a professional trading platform provided by Denver-based CQG Inc.

Ben Kahn, team leader of team GEM VIII, said the rules of the challenge forced teams to use some technical trading methods.

Ben Kahn

Ben Kahn

“We wanted to try to use our knowledge of the global market for oil,” Kahn said. “In order to keep things simple and since we had a certain amount of knowledge about crude we decided to only trade the oil contract. From a high level our strategy involved over laying our analysis of the macro supply and demand factors on the short term momentum studies we looked at also taking into account the news that was driving the market that day.”

The team set up a rotation so that two people were responsible for trading each day. Kahn and teammates Michael Hutson, Jennifer Livermore, Laura Doze, and Ian Jaeger would spend the several hours of the day trading, and the team communicated through e-mail during the week.

The challenge was “super addicting,” Kahn said.

“If someone gave me the chance to trade for a living I would jump at the chance,” he said. “My big takeaways were the experience of working with the team to make investment decisions and using some of the more in depth features of CGQ that I hadn’t had the chance to use before.”

Kahn also saw how risky the challenge could be. The teams competed against 320-teams in the international competition, and only the top 33 teams could advance to the final round.

“Going into the second to last day we had an outside chance of making the top 10 percent,” he said. “We bet big and the trade went against us, it was a little disappointing, but that’s nature of trading with high amounts of leverage in a volatile market. I think considering the experience level of our team relative to the competition our results were solid.”

Ian Jaeger

Ian Jaeger

Ian Jaeger found one of the biggest challenges was balancing school and work along with this new trading experiment.

The primary round of the competition lasted about two weeks and the teams were required to make at least five round trip trades per day every day except Sunday. The training round was a similar two week session, according to Jaeger.

“It was a really interesting experience” Jaeger said. “I’m not a gambler by nature, but the trading, once you were into it, was pretty addictive.  The CQG trading platform is PC based, and the days I was on deck to trade, I had worked a way to remote-desktop my PC to my iPad so that I could keep a constant eye on it while away from my desk.”

Each team started with $100,000 in virtual money.

“(The money) allowed us to trade about 13-15 contracts at a time,” he said. “The first few days while we were still feeling the system out we were only trading one or two contracts at a time, which didn’t gain or lose much money. Money is made on the movement of the price, in that for each contract of 1,000 barrels of oil, a one cent move would make or lose $10.”

It took Jaeger a little bit of getting used to, but soon the system began to click.

“Something really interesting happened,” he said. “I disconnected the number from a value. That is, I didn’t think of it as dollars anymore, it was simply a number and I had to play the change up or down regardless of what it was. All of a sudden, it was much easier to trade 15 contracts at once, gain or lose a couple thousand ‘points’ either way and you just move on and make more trades. For me this was a startling revelation because all of a sudden, the Wall Street Crash becomes very clear.  You literally CAN’T think of it as money in order to be successful, which is why it seems so easy for the folks on Wall Street to be able to walk away from these billion dollar losses without blinking.  It’s actually a surreal experience, and one that many people still can’t comprehend.”

Will Ellison

Will Ellison

GEM student Will Ellison competed on the GEM VII team alongside Jeremy Hancyk (team lead), Brandon Blevins, William Cannon and Michael Lantz.

His team divided up the products and contracts and assigned team members to corn, gold, and oil. Each member provided background information and monitored events that would affect trading.

Both GEM teams also appreciated the assistance they received from their advisor Michael Orlando. The GEM professor is an Economic Advisors Principal Consultant and Adjunct Professor of Finance at Tulane University.

“Dr. Orlando was a wonderful help in reining us and a lot of our initial strategies in keeping us realistic,” Ellision said. “He basically provided the voice of reason and was realistic in what we could and could not do.”

Ellison gained a new level of respect for commodity and day traders through this experience.

“I believe we all learned how difficult trading can be, especially in the short term,” he said. “I think we were humbled by the fact we felt we had sound strategies but the government and media and various other groups or market directions have far more control and influence than you think. The biggest thing we learned is that on these short term contracts, you have to be willing to adjust on the fly.”

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