Advice for the Young and Ambitious Seeking Great Success
I reveal a secret I’ve kept for 20 years and a lesson learnt about winning big in life.
It’s been 20 years. I’ve never told anyone about it. No one else knew except for two friends — who were in on it.
The year was 2001.
Electronic trading for financial markets were in its early days, and retail investors were still transitioning from calling up their stock brokers to placing orders themselves on Internet platforms.
I was in my final year in university. There was a startup which wanted to create an electronic market for currency trading. A couple of industry veterans were behind the startup.
They decided to hold a trading competition among college students to promote their platform. The top prize was $5,000 — a very attractive amount for a student.
Three is better than one
Having wandered into the world of financial markets at an early age, I was already teaching technical analysis (aka charting) to my peers in the university investment club.
I decided to take part in the trading competition.
I also asked my room mate and his girlfriend to sign up so that I could trade three accounts at once and increase my odds of winning.
Back in those days, the foreign exchange (FX) market was still pretty much a private and exclusive market between financial institutions like banks and hedge funds. As an individual investor, there wasn’t really a way for you to trade FX unless you were a private bank client who could buy or sell at least a million dollars in each transaction.
There was also no broadband internet yet. Market data and execution speeds were painfully slow compared to today. And certainly few people except professionals in the big banks and fund houses had access to real-time news and price quotes via expensive Bloomberg or Reuters terminals.
But I did.
My university had a financial engineering laboratory which was used by post-grads in related courses. Reuters had sponsored some 15 terminals in it. I was given special access due to the nature of my graduation thesis and the senior professor supervising me.
And it was there, on the first day of the competition, that I noticed something strange and wonderful.
Latency, or more commonly known as ‘lag’, is the time needed for information to travel between two systems. This could be due to the cable transmission speed as well as the processing speed of the hardware and software used.
In financial trading terms, that’s the time needed for orders and market data to flow between the trader on one end and the electronic marketplace on the other.
20 years ago, latency was still measured in seconds for internet based trading platforms. Today it is measured in milliseconds and microseconds — a thousandth of a second and a millionth of a second respectively. To put that into context, an average blink lasts about 400 milliseconds.
Today, many high frequency trading (HFT) firms would pay tens of millions just to shave microseconds off their latency so that they could arbitrage between markets ahead of everyone else. But more on that later. Let’s talk about what happened 20 years ago first.
Although this startup’s platform tried to replicate the institutional market’s FX prices, I noticed in the lab that their latency could go up to quite a few seconds compared to the Reuters screen — especially when the market made quick and big moves in one direction.
This was great!
This meant I had time — sometimes for all three accounts — to key in orders to buy or sell a currency, already knowing it was definitely going to rise or fall.
It was a strategy that required only keen eyes and quick fingers. The profits were almost guaranteed.
And so I won the competition — not just the top prize but all the prizes. The combined winnings for first, second and third places was $10,000; a windfall for me and my friends.
I don’t even remember what I did with the prize money. I think I squandered it away.
But 20 years later today, as I read about the world of HFT in Michael Lewis’ book ‘Flash Boys’, I realized just how much bigger, was the real opportunity I’ve squandered.
It should have occurred to me then, that as the world of financial markets moved to electronic trading, latency between new markets and exchanges was going to result in very profitable arbitraging opportunities!
I was a major in financial analysis then, a course modeled after the Chartered Financial Analyst (CFA) program. We studied traditional methods like fundamental analysis — which basically looks at economic forecasts, future cashflows and company financial statements — to value financial instruments and make trading decisions.
That year I went on to win another trading competition (this time trading for real) organized by the Asian Wall Street Journal, and an investment essay competition organized by PIMCO, the largest bond fund in the world. As a poor student running out of funds, I accepted a job in JPMorgan as an analyst after graduation and never looked back.
By 2007, HFT shops were raking in billions at the expense of just about everyone else in the game. And here I am, reading about it 20 years later, suddenly reminded of that trading competition and the revelation on the huge trading opportunity to come that I should have capitalized on.
Had I been far more astute and truly learned from that experience, I should have gone on to do post-graduate studies in an I.T. related field that would have prepared me for developing automated arbitraging algorithms and systems.
I had missed the forest and saw only the tree…
Looking back at 20 years of my life: All the successes and failures, all the startups I’ve been in or consulted for, all the entrepreneurs I’ve talked to; great success often started with one important element — do you have an edge that no one else has?
More often than not, the young and ambitious looks at the success stories of the past, instead of looking towards the opportunities of the future.
Everything you’ve studied in school, all the case studies you’ve read — these taught you what someone else has done to successfully create or exploit opportunities they’ve found. To find that big advantage for your own future, you need to look forward and away from past experience and knowledge.
Whether you are aiming to fly high as an employee or entrepreneur, the same principle applies: What opportunities do the future hold that few has spotted? What can you do to develop an edge over others in that space?
Discovering that edge and staying focused on it is the best possible first step you can take towards great success!