Rice team wins Commodity Trading Challenge

For the second time in three years, a team from Rice University won the CME Group Commodity Trading Challenge – an international competition in which the winner is determined by the best investment returns after four weeks of simulated trading.

Rice students Jay Chen, Justin DeVito, Robert Margolis and Sean Mulvehill entered the competition as “Rice JJRS” – the initial letters of the members’ first names. In the championship round they were given a simulated balance of $250,000 to trade and earned $372,325 in returns – more than $50,000 higher than second-place winner Polytechnic Institute of New York University, which earned $319,625.

Each member of the winning team received $700 and an invitation to go to Chicago April 12 for CME Group’s day of market education, where they can watch presentations on the global marketplace by industry experts, observe live open outcry trading and network with top firms. The Chicago Mercantile Exchange (CME) Group is the world’s largest futures exchange company.

Rice JJRS competed with nearly 1,500 undergraduate and graduate students from more than 320 schools in 26 countries in the preliminary round of the challenge in February.  Participants traded crude oil, gold and corn futures in a real-time, simulated environment on a professional trading platform. Teams in the top 10 percent moved on to the championship round in March.

“We entered the competition so we could translate what we have learned about markets in our economics classes into practice by analyzing and participating in real-world energy markets,” team leader Margolis said. “We actually had little to no experience trading commodities with real money. We thought the collegiate trading competition was valuable because it allowed us to experiment and learn the markets and advanced financial technology without having to worry about making costly mistakes.”

Margolis said his team’s strategy was to focus all of their efforts on the West Texas Intermediate (WTI) crude oil market. “We have had internships in the energy and financial services industries, and we thought that interpreting news and trading based on our analysis of the WTI market would be something that we could understand and that would be relevant to our future careers,” Margolis said in an interview with “Open Markets” magazine.

Rice JJRS focused on fundamental analysis but also performed some technical analysis. “Our team philosophy was that there’s no one right way to speculate,” Margolis told “Open Markets.” The team read CME’s commentary on the energy market, daily energy market reports and Bloomberg articles on WTI storage reports. They supplemented that information with studies of support and resistance levels to predict how WTI prices would move over the next couple of days.

The process entailed watching the markets throughout the day to see how prices changed and to monitor how the team’s short and long investments fared. The team also analyzed whether news factors, such as the death of Venezuela President Hugo Chavez or an update on U.S. oil production, impacted market psychology and crude-oil fundamentals.

“This experience gave us the confidence to perform fundamental and technical analysis on commodities,” said Margolis, an economics major at McMurtry College who plans to work for Citigroup Commodities after he graduates in May.

Margolis said his teammates are also interested in careers in the energy or financial services industries.

Chen is a Brown College senior majoring in economics and managerial studies.

DeVito is a McMurtry College senior majoring in chemical engineering. Mulvehill is a McMurtry College junior majoring in statistics and mathematical economic analysis.

A Rice team also won the CME Group Commodity Trading Challenge in 2011.