Trade or Tighten’

Years ago, Khan Academy created a game out of RISK outcomes to teach how the invisible hand of markets form consensus, and idea that underpins how price signals marshal resources.

Great 2 minute video:

Sal Khan:

The point of using the boardgame RISK is just to have something that the market can predict. And the big takeaways from this should be whether or not markets are good at predicting complex phenomena. The whole point of this is to understand how markets work, how markets are tied to actual reality, how prices and probabilities are related – prices of securities and probabilities of various events happening.

I think in the everyday world, when you think about the stock market, people don’t realize that those are real people dealing. But here you see the people and you see the excitement, or when people get down on the stock you can see it very viscerally.

[camera pans]

Now you can see people are starting to get comfortable, they’re starting to understand how the trade works, they’re starting to understand the dynamics of the RISK game, so you’re getting a lot more professional trading behavior going on.

A lot of students here, it’s the first time they’ll have experience with a market, this idea of buying and selling things. Even a lot of the parents have never actually bought and sold securities like this before and have seen how the price of a security can connect with some form of reality.

[Kris: love this line]

One thing about simulations is you learn something while you’re in it and then you go home and you think about it and you learn a lot more.

The "Trade or Tighten" Game

Besides mock trading a way prop firms teach market-making and handicapping is to play Trade or Tighten. You can do this with your family, friends, colleagues.

Here’s the rules courtesy of Austin Zhang:

1. Mutually agree on a quantitative figure (e.g. the temperature of a randomly chosen city) and the size of the contract (e.g. $1 per °C)
   
2. Without looking up this value, players must take turns making markets on this figure. This means they must state a price they would be willing to buy at (bid) and a price they would be willing to sell at (offer).
   
   ✅Neither the bid nor offer may be less aggressive than the previous market.
   ✅At least one of the bid/offer must be more aggressive than the previous market.
   
3. At any point, a player is allowed to trade against any other player’s market. Play continues until a trade occurs.
4. Once a trade occurs, play stops. The contract settles at the value of the agreed figure

This is a commonly played trading game. It’s a good way to guarantee a trade happens between two parties that want exposure. It’s also a fun way to test your intuition.

It’s a lot like Liar’s Poker but you aren’t limited to serial numbers on dollar bills.

This is still played by prop firms.

• Citadel’s “superdays” for trading interns (thread on Wall St Oasis)
• IMC’s Launchpad program in Sydney (LinkedIn post)

Here’s another free resource I found for the codex that aspiring quants might enjoy:

MIT Sloan Business Club’s The Quant Bible (via coursesidekick)

50 pages of nerdom