Trading team goes to championship

By Ellen Liu     3/14/12 7:00pm

The Rice Commodity Trading Team has struck it rich. The team qualified for the championship round of the Chicago Mercantile Exchange Group's Commodity Trading Challenge and is competing against 16 other universities for cash prizes.

The CME Commodity Trading Challenge is a global competition in which undergraduate and graduate teams of up to five people trade various commodities on CME's virtual exchange. Each university can send up to four teams every year. 164 preliminary groups competed for 16 final-round spots this year on a platform that included charts and a box with real-time breaking news.

"This competition rewards students who follow the news religiously and can quickly determine the major factors moving a market," McMutry College senior Vijayvargiya said. "A skilled trader can identify the few stories that are most important and ignore the rest."

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Team members include Vijayvargiya, the team captain, McMurtry senior Kevin Beale and Will Rice College seniors Paul Ernster, Biplov Baral and Andrew Emil. Their faculty advisor is Baker Institute Fellow in Energy Studies Kenneth Medlock. The team is in third place as of the time of writing.

The preliminary round went from Feb. 15 to March 1, and the championship round will end on March 16. The final results will be announced on March 20. According to Vijayvargiya, the top four teams will win cash scholarship prizes, and the winning team will be interviewed for a paid summer internship with the CME Group.

Vijayvargiya said he formed and registered the team for the competition in early January. The team established a trading strategy in early February, deciding to focus on oil because the members understood that market best. They then identified a series of issues that would drive the market, including conflicts with Iran, the Greek bailout, U.S. economic growth and the value of the U.S. dollar.

"Our strategy is unique in that it is both fundamental and technical," Vijayvargiya said.

According to Vijayvargiya, on days with little news, the team trades using technical indicators - a series of chart patterns used by traders to determine when to buy and to sell. He said the team also reacts to major news announcements.

For example, on the last day of preliminary competition, a report was published claiming that a pipeline in Saudi Arabia had exploded, and the oil price jumped more than 5 percent. Though traders later discovered the report was false, the Rice team had already sold its position, moving from 112th to 16th place in one day, Vijayvargiya said.

Every team member is passionate about trading and is able to handle volatility and disappointment, Vijayvargiya said.

"It takes a thick skin to do this," Vijayvargiya noted. "Everyone has down days and must be comfortable with risk and losing considerable sums of money. Our team's motto throughout the competition has been 'Go big or go home.'"

Vijayvargiya said one major challenge during the competition was reaching unified decisions.

"We set strategy and trade as equals, deciding everything through consensus," Vijayvargiya said. "It has been difficult to resolve disputes, especially with five traders."

However, Vijayvargiya said he also regards this challenge as the team's greatest strength.

"Having multiple opinions allows us to fully debate our positions," he noted. "At the end, we come to agreement on the best strategy."

Vijayvargiya added that the team members have made personal sacrifices during the competition. For example, they have taken shifts monitoring the oil market 90 hours of the week and traded during spring break.

Beale said the team's biggest triumph so far was qualifying for the final round after struggling in the middle of the preliminary round.

"I think we were in the top five for a good while at the beginning, but we fell off a bit," Beale noted. "Fighting back into the top 16 from the middle of the pack was a pretty big success."

Vijayvargiya cited faculty advisor Medlock as a tremendous help in the preparation and training process.

"Dr. Medlock has been tremendously helpful, volunteering time to let us bounce trading ideas off of him and hear his thoughts," Vijayvargiya said. "His depth of energy knowledge is unmatched."

Medlock said the trading team took the initiative to ask for strategy tips and prepare for the competition. Its strong risk-reward approach paid off, and the team demonstrated its ability to aggressively capitalize on profit opportunities in a short amount of time, Medlock noted.

"This is pretty typical at Rice," Medlock said. "Successful students are independent-minded and use what they learn very well."

Last year, another Rice trading team won first place overall, and Vijayvargiya said his team is aiming to keep the prize at Rice. According to Vijayvargiya, this is his team's second and final year competing in the CME competition because all the members are graduating. He added that he hopes Rice will continue competing regularly in the trading challenge.

Daily results of the CME Commodity Trading Challenge can be viewed at cmegroup.com/education/trading_challenge.

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