# You Can Mock Trade With A Deck Of Cards

Card games used in training

Here’s a mock trading game I learned as a trainee to simulate futures and options market making. This game was commonly used as a day 1 exercise in trading class or when interviewing cohorts of college grads during recruiting “combines”.

**The Futures Game**

**What you need:**

- A deck of cards
- Nerdy friends (the more the better)
- A paper and pen per person to use as a tradelog

**Setup:**

You want to deal out enough cards to players (these are the *market makers*) so that there is about 25 remaining in the deck. There’s some leeway here.

Example:

- You have 6 players. So deal them each 4 cards leaving 28 cards undealt.
*Market makers*may look at their hands but don’t share info.- The undealt cards are known as the “public pile”. They should be evenly divided into 4 or 5 sub-piles ideally (again there’s leeway depending on how many cards there are).
- The sub-piles are going to represent “trading days”.
- The cards themselves are news flow which will move the futures prices.

**Description of futures prices:**

- The futures are the 4 suits. There’s a club’s market, a spades market, etc.
- The final settlement price of the futures will be the sum of the ranks of cards in the public pile. (Ace =1 thru King = 13). So the maximum any future can be worth is 91¹

It’s best to define the tradeable universe to keep the liquidity centralized.So you could have a diamond market, a spades market, and a “reds” market (which would be an index settling to the sum of diamonds and hearts).

**How To Play**

**The first trading day**

- Reveal the cards in the first public sub-pile.
- Market makers make bids and offers for the various markets. Tight 2 sided markets should be encouraged/required. For example:

John: “I’m 65 bid for Hearts and offered at 68”Jen: “I’ll pay 67 for 5 Hearts contracts” (perhaps Jen is holding no Hearts in her hand)John: “Sold you 5 at 67” (John is holding 16 points of Hearts in his hand) - Record all your trades on your own pad or paper:

1. Which contract you bought/sold

2. Quantity of contracts

3. Price of contracts

4. Counterparty

So for example, if I paid 51 for 4 “clubs contracts” from Mary I would record that information on my paper. Mary would record her sale of the 4 contracts at 51 on her card with me as the counterparty.

- The trading is open outcry. There are no turns.

**Settling the trading day**

- When the trading peters out for that “day” everyone should check their trades against their counterparties to make sure there are no so-called breaks or “outtrades”.
- On a central eraseboard or paper the “closing price” of each market can be recorded. So if the King of clubs and 3 of clubs were revealed from the sub-pile, then clubs “settled at 16”. Clubs might have traded 53 last in the expectation that more clubs will be revealed on subsequent days.
- Repeat this process for all remaining tradings days

**The last settlement**

- Compute “P/L” for all trades.

If I bought 4 clubs contracts for $51 and clubs final settlement was $63 then I made a profit of $12 x 4 or $48. Mary’s loss would match that amount for that trade.

*The total P/L of all traders should sum to zero at the end of the game.*

**Options Variant**

- Either the same group or a different group of people could choose to trade calls and puts on the final settlement price of the futures.

So if I paid 3 for Clubs 55 calls and the final settlement was $63 then I profit the difference between the $63 and the strike ($55) minus the premium I outlayed:

$63-$55 – $3 = $5 - You could even get fancy and trade “vol”. You could sell say 10 clubs calls and buy 5 clubs futures to hedge the delta.
- This game is played the same way the futures game is played or in conjunction. Repeat the process for all trading days then compute P/Ls at the end. Again if there are no errors the game should be zero-sum.

**Footnotes**

- Here’s the trick to summing the numbers 1 through N or in this case 1 thru 11.

N(N+1)/2

So 11×12/2 = 66

Let’s try another. Sum the numbers 1 through 100.

100×101/2 = 5050

Why does this work?

Pair the ends off.

100 + 0

99 + 1

98 + 2

97 + 3

96+4

…continue until 51+49

What do you end up with:

- 50 pairs summing to 100
- The middle “50” left over.

50×100+50 = 5050.

That maps to (N/2) x N+1 or “the middle number occurs N + 1 times”. That 1 term is the “middle 50”.