Muma Trading Challenge lets students experience highs and lows of market
The first Muma Trading Challenge allowed students to trade stocks with no risk of losing money - but one student ended up $1,000 richer.
Finance graduate student Jake Smith took first place in the simulation against 440 other students in the competition, which came with the $1,000 scholarship. The inaugural competition, which was sponsored by Mezrah Consulting, allowed students to use the TD Ameritrade thinkorswim® platform that the company's own traders use, with one crucial difference - students were using fake virtual money. Students could develop their portfolios from 545 securities.
"My favorite part of the competition was testing strategies that I wouldn't try in real life," said Smith, who maintained first place for the majority of the competition. "When investing real money, all you care about is maximizing the expected return, and minimizing risk."
Smith said his strategy early on in September was to pick the most volatile and risky portfolio he could, since restrictions on trading within the challenge eliminated the ability to increase risk by strategies such as shorting securities or trading on margins. Buying the Marathon Oil stock (NYSE: MRO) put Smith in first place with a 30 percent return.
"If there's 400 people and I picked an average portfolio, then I have a 1-in-400 chance of winning," he said.
Later on in the competition, he worked to maximize return, and in the home stretch, he focused on staying ahead of the second-place competitor. Overall when the competition closed at the end of the fall semester, Smith had earned 15 percent return with the market return at approximately 6 percent. Smith has recently graduated and moved to Pittsburgh to take a job as a revenue management analyst with FedEx.
When Finance Department Chair Dan Bradley envisioned the Muma Trading Challenge, he thought 200 students might sign up. The number of students interested exceeded expectations, and he said that he hopes even more students will actively participate in the next challenge. Bradley said the second Muma Trading Challenge will start early in the spring 2016 semester. Check the Muma Trading Challenge page for updates. The restrictions on shorting stocks and trading on margins will no longer exist, leading to a competition with increased possibilities.
"It will be more sophisticated," Bradley said.