Mulangma (Isabella) Zhu ‘20 is Trading Her Way to Success
CIEC: When did you develop a passion for financial markets? What kinds of resources (both on and off campus) helped you learn about them?
Zhu: My passion for financial markets originated from the University of Chicago’s Trading Competition that I attended during my sophomore year. As a computer science major, I thought it would be exciting to apply my algorithmic thinking and quantitative skills to trading. I’m fortunate that my team was the first in Smith’s history to attend this competition I was fascinated by how financial products tackle the fundamental problem of moving economic value through time and space. I also enjoyed the dynamic problem-solving in a fast-paced environment. After the competition, I started to learn more about financial markets. Besides the quantitative aspect, I became interested in seeing how geopolitical events and economic policies influence price actions on a macro level.
The greatest resource that I relied upon when learning about the markets was news media. This included all the major outlets you can think of: The Wall Street Journal, Bloomberg News, The Economist, etc. I still try to allocate time for myself each day to read the headlines, with special focus on the markets and economy sections. My personal favorite means of consumption for information was through podcasts – they’re hands-free, and you can listen to them on-the-go so this doesn’t eat into your schedule too much. Sometimes, my friends and I would casually discuss what’s going on in the markets and try to explain our reasoning behind it. I also reached out to Smith alumna and professionals I met through competitions and conferences - it was always great to learn from their expertise.
The UChicago competition was a great experience and one that allowed me to learn about the intersection of technology and finance. through hands-on experimenting. So after that, I participated in the Jane Street Electronic Trading Challenge in June, and the Traders@MIT Competition in November. These competitions allowed me to be exposed me to a variety of different trading styles, strategies, and different types of financial products. At the competitions, I was presented the opportunity to come face-to-face with people from some of the leading institutions in the financial industry, which also taught me a lots.
CIEC: How did you prepare for these trading competitions?
Zhu: The main way to prepare is through studying the case packets provided by the organizers of the competitions inside out, doing self-research, coming up with creative ideas, and solving problems in implementation. All participants receive case packets that detail what kinds of trading algorithms participants are required to write roughly a month before the the competition. On competition day, the code files are executed and participants get to see their performances live as each team trades against each other.
For example, at the Traders@MIT competition this year, there were two cases: Options Trading and Algorithmic Sales and Trading. For the option case, we were required to make profits from arbitrage opportunities. (Sorry I’m about to go into some technical details here.)
An option is a type of financial product that is essentially a contract upon the trading of stocks. It dictates that someone has the right to buy or sell a specified amount of financial products at a certain point in the future, at a pre-agreed-upon price point. The pricing of such a contract is very complex and has led to decades of cutting-edge research. In this case, we were taught a very simplified version of the pricing model of an option and were required to create our strategies accordingly.
By reading the case package thoroughly and doing an adequate amount of independent research (i.e. googling every term you are not comfortable with; seeking for alternative explanations of what I don’t understand in the case packet), we learned that one of the influencing factors of the price of an option is implied volatility. Those who are familiar with statistics may regard this as the standard deviation of the distribution of an option’s price, only that it is not an observed statistic, but a perceived one. With that said, these interpolations could easily be wrong. What happens when the future comes, and people realize that the actual volatility is not what they thought it to be? The answer is there will be a discrepancy between its intrinsic value and perceived value, which creates an opportunity for arbitrage. Now we need to write a program that calculates our implied volatility and seek for this arbitrage thing. Many more complications will arise as we write the code, mainly because that’s how programming always turns out to be…
Then comes the hardest part. It’s basically thinking about how to win and implement your idea. For example, how do you pick the best strategies and verify that they would truly work? This would involve something called back-testing. How do you hedge your potential risks and what’s the appropriate hedge ratio that won’t eat into your profits? How do you calculate the best bid-ask spread given the real-time information and actions of other market players? How do you send out your order quick enough to get it filled before the price is gone? What should you do when the market is moving against you? Usually, my team would sit down to bring our creative minds together. I would say as beginner, the best way for us to tackle these challenges above is to stick with the fundamental way, pay strong attention to details and add some small tricks.
CIEC: What advice would you give someone who is interested in participating in these types of competitions, but doesn’t know where to begin/how to get information?
Zhu: I don’t think participating in these competitions is necessary in itself, but it’s definitely helpful to know these opportunities exist.
I would say the most important thing is to actively seek information and constantly reflect upon your personal goals/plans in joint with that information you acquire. Seeking this information could entail many things – Googling is often sufficient for you to be aware of the existence of various opportunities; to gain a more first-hand, in-depth explanation of what these opportunities are like, you might want to talk to alumnae, Smithies, or your friends at other schools that have had similar experiences.
However, at the end of the day, the single most crucial task is to factor in your own goals and preferences. You must ask: does this interest me? am I intellectually excited by this? does this at least partially align with my short-term goals? Every individual has a different decision-making process, but it all starts with acquiring information and more importantly, keep doing personal reflection. It took me a long while to realize where my career interest is, and I really couldn’t have found it without the help and support from many others. Honestly, I’ve talked to many Smithies who feel confused on making future plans. I totally understand it, but we should never leave such an important question only to ourselves – don’t hesitate to reach out to people for advice, help, and emotional support, cause we’ve all been there and Smith has a strong support network...and I’m always happy to talk!
CIEC: What are your future career goals?
Zhu: My future career goal is to work in a position that is involved with the financial markets, and advocate for diversity and inclusion in the financial industry.