The Future of Futures May Be Decided Here
MIT's state-of-the-art 'stock exchange' promotes learning in risk-free arena
'Last night I took a long position on 5,000 shares of IBM,'' says David Raboy, sitting before a computer work station as an electronic ticker-tape flashes across the wall behind him.Skip to next paragraph
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''I started off with a million dollars, and this value up here'' - he points to a number on the computer screen - ''is actually my market value. Right now my portfolio is worth $992,000, so I've lost about $8,000.''
A sizable loss, but Mr. Raboy doesn't seem to mind. The reason: No money was actually invested. Raboy is not a money manager but a student, and this is happening not at a large brokerage firm in one of world's financial capitals, but in the recently unveiled trading room at the Massachusetts Institute of Technology here.
The state-of-the-art training and research center is the closest thing yet devised to an actual trading room - a place where stocks, bonds, and other issues are bought and sold. MIT's Sloan School of Management - which together with MIT has been feeding Wall Street firms the way they once fed Silicon Valley - hope to raise the education of future brokers, investment bankers, and money managers to a new level of real-world skill and insight.
The idea behind the trading room, says Paul Asquith, professor of finance and senior associate dean of the Sloan School, ''was to blend theory and practice. We decided to do not just a trading room - there are a number of those starting to pop up at other universities where you can do simulated trading, with three or four desks receiving data. We decided to build a room where you could walk from Wall Street down here and do a day's worth of work: all of the facilities, all of the data, all of the software, all of the power to do that.''
MIT wants the room to be not only a lab for students but also a research tool for the faculty. Financial research is a tradition at MIT, where the so-called Black-Scholes formula - a renowned method of putting an accurate price on financial options - was developed in the early 1970s.
It not only became a linchpin of the then-new field of ''financial engineering,'' but also spurred the rapid growth of today's $20-trillion options-trading business.
Now MIT hopes the trading room will help the Sloan faculty make equally important innovations in the new world of financial theory and practice. Potential areas of advanced research at this point include improved ways of analyzing risk, the effect of psychology on trading, and new ways of using computer graphics to display the performance of complex portfolios.
First of its kind
Although the department of finance at the University of Texas in Austin expects to open its own impressively equipped ''trading floor'' in a couple of months, the MIT trading room is the first fully equipped facility of its kind. Located in the basement of the Sloan School's main building, the brightly lit, 3,000-square-foot area is a humming nexus of financial data and high-tech equipment, where practice sessions in buying, selling, and strategizing seem indistinguishable from the real thing to a casual observer.
Sitting before 23 Pentium-powered PCs on handsome wooden trading desks, students deal with the same continuous flow of information as a trader uses, including price-volume information from Reuters - delayed by 15 minutes - on some 300,000 financial instruments around the world. The students speak to each other urgently on a telephone network that features phones with flashing red and blue lights - although the lines don't reach beyond the trading room. Breaking economic news from Europe flashes against the wall.
''What goes on here is extremely realistic,'' says second-year Sloan student Greg Tell, who worked in trading for Merrill Lynch last summer and is slated to join the firm after graduation. ''As far you're concerned, the world you're in seems real, even though the data feed is delayed 15 minutes.''