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University Trading Challenge 2014 - Team Birkbeck Review

Birkbeck entered its first team into the University Trading Challenge in 2014. Ahmed Razzaq (LLM QLD) shares his experience of the competition on behalf of Team Birkbeck.

What does OPEC’s decision to keep production at current levels in spite of falling oil prices imply for asset allocation? How should an investor weigh the risks and opportunities posed by increased chances of QE? How does one develop hedging strategies for risks faced by a natural gas processing company, using only traditional cash market and derivative products? These were some of the questions tackled by Birkbeck students in this year’s University Trading Challenge.

The event showcased the top student traders from around the country and allowed UK’s premier financial firms the opportunity to gain access to this talent. Held at University of Kingston’s School of Business, newly-built in early December, the competition offered participating students a chance to gain insight into the praxis of the operation of some markets. A select team of Finance and Economics students took part this year, marking the first time that Birkbeck entered the competition.

The challenge consisted of four rounds, the main one consisting of a month-long, multi-instrument trading simulation. The trading platforms, provided by Capital Wave, were capable of creating specific economic outcomes that challenged competitors’ decision making processes. This particular round required students to effectively execute multiple trading strategies over the course of the month. The simulation was made more realistic by the fact that trades were made in “real time” i.e. in response to real world events.

Points were awarded not only on total returns but also on participants’ ability to manage risk (volatility). Given the recent oil price fluctuations, as well as stiff macroeconomic headwinds, this made for an effective and engrossing way to learn about ways that financial instruments could be traded and which strategies could be employed. It was in this part of the challenge that Team Birkbeck enjoyed the greatest success. Our team finished third in this round, which augurs well for future performance.

This was followed by a forex trading round, a portfolio management round and a panel presentation that focused on managing commodity risk. Judges included specially invited faculty from top UK universities, captains of industry and leading investment professionals. The competition was extremely fast paced, with many subtleties and little time to do any of the homework necessary to determine a strategy. The trading simulation offered a complete universe of stocks, as well as access to every asset class, yield, maturity and geography.

Although it may be a while before the likes of Optiver, GETCO or BlackRock call us to share our freshly acquired expertise, the competition offered an invaluable opportunity to obtain hands-on experience on trading platforms that use up-to-date technology. As the mathematician Paul Halmos said once, "The only way to learn mathematics is to do mathematics." This maxim feels particularly apt when applied to trading.

Altogether, it was a helpful practical illustration of how capital can be put to work on the markets. Hopefully, the experience has helped augment our knowledge frontier of financial instruments. The team has learned many valuable lessons. For example, one lesson is that a long horizon and risk management are key to any strategy aimed at capturing the return premium from holding less liquid assets.

In the end, Birkbeck finished 8th out of 19 - a good result in light of the fact that it was our first year in the competition. The competition was won by the team from City University, London. City also had the advantage of entering three teams in this year’s competition.

We hope that the Department of EMS, together with the Economics & Finance Society, can build on this strong performance and enable those students who express an interest in a career in Financial Services to take part in other opportunities of this kind.

The experience will no doubt be useful in our chosen future professional environment. A better understanding of risk management techniques also provides an interesting insight into just how captivating the markets can be. Apart from the practical experience of electronic trading with multiple protocols, the team has a more nuanced understanding of rules on capital requirements, proprietary trading and risk assessment.

Bryant Nielson, Director for the University Trading Challenge commented, “It continues to amaze me the quality of students and their concentration on each of the challenges. It is testament to the quality of the academic programs at the participating universities. These students were of extremely high quality and should be hired by firms without any hesitation.”

Casper Marney, Managing Partner of Marney Capital, a London based trading firm, said, “These students were quite amazing, better than I had expected. I believe that they will do quite well in the financial markets”.

Terry Gamell, Director of International Treasury Services, and a corporate sponsor of the event added, “The London University Trading Challenge was an exciting and competitive day and it was good to see students from some of the leading finance programs taking part and enjoying the day. The combination of the four challenges demonstrated the effort that students needed to display that will server them well in their careers. It leaves one with tremendous confidence in the next generation of bankers and financiers.”

The team consisted of Dom Gavan (BSc Financial Economics), Mounib Ismail (MSc Financial Engineering), Gurkamaldeep Parmar (BA Business), Ibra Diouf, not pictured, (BSc Financial Economics, late substitute for Gurkamaldeep) and Ahmed Razzaq (LLM QLD).

Special thanks to the School of BEI and the Students' Union for funding the team this year; to the Birkbeck Economics and Finance Society for facilitating the entry and composition of the team; and to Charles Shaw who provided mentoring and advice throughout the period.

Author: Ahmed Razzaq

Students interested in joining the challenge for 2016 or similar opportunities, please contact the Birkbeck Economics and Finance Society in the first instance.