How Brokers Wind Down — The Spot Game
OK so it is time to get your notes out once again as you are in for a treat!
In the last article I detailed a game called Liar’s Poker that traders and brokers have been playing for decades in dealing rooms and bars across the world. While many of you may have been familiar with that game, it is unlikely you would have heard of The Spot Game. Indeed a simple Google search yields no relevant results.
I am pretty sure the Spot Game evolved from Liar’s Poker, and can safely assume it originated on a spot desk at one of the money brokers in the 1980’s.
Back then, interbank trading of currencies was largely channeled through interdealer brokers like M.W. Marshall & Co, Cantor Fitzgerald, and Tradition.
What I like about the Spot Game is that it adds another dimension to gameplay with the addition of transaction volume and thus mimics real life trading without the regulatory oversight. By this I mean that you are not going to be thrown in jail for spoofing (price manipulation) the market. Disclaimer — I do not condone spoofing in any shape or form in real life, but this is a game folks!
The basics of the game are that you have to trade using limited information available only to you and all your trades are settled against the closing price. Sounds complicated? Well it is not, and can be a whole lot of fun.
The Spot Game
Requirements: 3–10 players with around 5 or 6 being ideal. Paper money in any denomination or currency. Make sure that each player is playing with the same denomination of note to ensure the serial numbers of each player are of equal length. A pen and notepad for each player.
You start by deciding which two numbers in the serial number to play. So you
might all agree to use the first and last number, which would be a 6 and a 3 if you held the note in the picture (BG647463J).
Then each player would take a note from their wallet making sure to not show the serial number to any other players. They would make a mental note of their first and last numbers (which total 9 in this example) and that would be their initial information with which to make trading decisions.
Before you start trading, it would be good if you calculate the mean (average). So if you have 4 players, the closing price would be between 0 and 72 with the mean as 36. With that in mind, if your two numbers totaled less than 9, you might likely be a seller above 36, and a possible buyer below 36.
Remember, each transaction you do will be settled against the closing price, which in the case of 4 players, will be all 8 numbers added together.
Any one of you can now shout out a bid (price you are willing to buy) or offer (price you are willing to sell) based on where you think the closing price will be.
The closing price will be the total of all the first and last numbers of each player.
So anyone can shout out a bid or offer, or even quote a two-way market. The following is the actual language used in voice broking on FX markets and may take some time to get used to, but by all means feel free to use normal English.
Quite often, to get the ball rolling you might need to assign a market maker (someone willing to quote a bid and an offer) for each round.
Player 1: “I am 33/36” (willing to buy at 33 or sell at 36)
Player 2: “35 offer!” (indicating he possibly has low numbers)
Player 3: “Join your offer!” (so now we have 2 sellers at 35)
Player 1: “OK I pay 34 on 100” (100 is the amount he is willing to buy at a price of 34)
Player 2: “YOURS!” (meaning that he is hitting the bid)
Player 1: “DONE!” (meaning that the transaction is confirmed)
Player 1 would now write down on his pad that he paid 34 on 100, and Player 2 would write down he sold 100 at 34.
Player 3: “I would sell you 100 at 34 too if you want”
Player 1: “No I am 33 bid on the follow”
Player 4: “I will pay 34 on 100”
Player 3: “YOURS!” (and Players 3 and 4 would note their transactions)
Player 4: “Pay on!” (meaning that he is still willing to buy more at 34)
Player 2: “I will give you 300 at 34”
Player 4: “DONE! Will you do 500?”
Player 2: “OK 500 sold at 34” (and each player would note their transaction)
Player 4: “Pay on!” (he is still a willing buyer for more at a price of 34)
At this point the sellers might start to think, “Sheesh, this guy has two big numbers, possibly two 9’s?”
Player 1: “I offer 100 at 37” (just earlier he paid 34 on 100, so would be more than happy to sell 100 at 37 netting a JPY 300 profit in just under a minute)
Player 4: “35 Bid”
Player 1: “Stuck at 37”
Player 4: “How about we meet in the middle?”
Player 1: “No sorry, I am stuck at 37”
Player 1: “Best offer at 38 now!”
Player 4: “I’ll do 37’s in 100”
Player 1: “Sorry, too late. You snooze, you lose!”
Player 4: “MINE! I’ll take your offer at 38, can you do more?”
Player 1: “100 DONE, sorry that’s all I have” (thinking, nice! I just made JPY 400)
By this time Players 2 and 3 are probably thinking they need to cut their losses and buy back as their numbers are pretty average but Players 1 & 4 might have big numbers.
And trading would continue until all players are comfortable with their positions. Each session would usually last a couple of minutes, and once trading ceases, they would add up all the 8 numbers on their notes and calculate the closing price. For this example, let’s assume trading halted after that last trade at 38.
The players disclose their first and last numbers on their notes:
Player 1 had a 7 and a 3 = 10
Player 2 had a 4 and a 3 = 7
Player 3 had a 9 and a 0 = 9
Player 4 had a 9 and an 8 = 17
Closing price = 43
Once you settle the transactions against the closing price of 43 you get:
Player 1 = +JPY 400 (Profit)
Player 2 = — JPY 5,400 (Loss)
Player 3 = — JPY 900 (Loss)
Player 4 = + JPY 5,900 (Profit)
I always preferred the Spot Game to Liar’s Poker but it does usually require you to set aside a pre-determined time slot of, for example one hour, and a quiet room.
Obviously your notes play a part, and if you are fortunate to have 2 zeros or 2 nines in a round then keep your cool, and don’t show your colours until you can line up significant size.
Dean Owen is the Co-Founder of Quimojo, a revolutionary new concept in Global Campus Recruitment.
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