From the Poker Table to the Trading Floor: Inside the Mind of Wall Street Traders | WSJ

Summary

In this Wall Street Journal feature, Susquehanna International Group highlights the parallels between poker and trading, using the card game to train its traders. The discussion with Todd Simpkin and Jeremy Ween delves into risk management, decision-making under uncertainty, and the importance of understanding outcomes versus decisions. They explore the psychological aspects of both poker and trading, such as managing ego, reading opponents, and learning from both wins and losses, emphasizing the value of these skills in navigating the unpredictable nature of financial markets.

Takeaways

• 🃏 Poker and trading share similarities such as risk management, understanding outcomes, and making decisions with incomplete information.
• 💼 Susquehanna International Group uses poker as a training tool for its traders to develop skills like risk assessment and decision-making under uncertainty.
• 🚫 It's crucial for traders to be comfortable with the variance in outcomes, as both success and failure can occur even with the right decisions.
• 🎓 Learning poker can instill patience and risk management, which are valuable traits for traders, especially when dealing with market volatility.
• 🔄 The concept of 'bankroll management' in poker, akin to capital management in trading, emphasizes not risking more than you can afford to lose.
• 🃅 Bet sizing in poker parallels trade sizing in investing, where the amount at risk should be proportionate to the potential reward and the trader's overall capital.
• 🤔 Traders must often 'read the market' much like poker players 'read' their opponents, requiring the interpretation of actions and the construction of likely scenarios.
• 🚫 Rookie investors often incorrectly assume that current market conditions will persist, leading to risky decisions based on short-term trends.
• 🕵️‍♂️ The ability to critically evaluate one's own performance, rather than attributing outcomes to luck, is key to improvement in both poker and trading.
• 💬 Ego can be a hindrance in poker as overconfidence may lead to underestimating opponents and missing key information that could change the game's outcome.
• 🎰 Both poker and trading involve navigating incomplete information, but the key is to make the best decisions possible with the information at hand.

Q & A

Why do traders and investors often compare poker to investing?

Traders and investors compare poker to investing because both involve risk-taking and decision-making under uncertainty. The game of poker can teach valuable lessons about managing risk, patience, and the distinction between making the right decision and having the right outcome.

How does Susquehanna International Group use poker to train its traders?

Susquehanna International Group uses poker to train its traders by highlighting the parallels between the game and trading, such as the importance of making decisions with incomplete information, managing risk, and understanding the variance in outcomes.

What is the significance of making the right decision versus having the right outcome in both poker and trading?

In poker and trading, making the right decision is crucial because it is based on strategy and risk assessment, whereas the right outcome is not always guaranteed due to the element of chance. It's important to be comfortable with the variance in outcomes and to make positive expectancy decisions.

How does poker help in developing patience and risk management skills?

Poker helps in developing patience by requiring players to wait for favorable conditions before making big moves. It also teaches risk management by forcing players to assess the potential rewards against the risks they are taking with each hand they play.

What is the concept of 'variance in outcomes' mentioned in the script?

The concept of 'variance in outcomes' refers to the fluctuation in results that can occur even when the same decisions are made. In poker and trading, even the best decisions can sometimes lead to losses due to bad luck or market volatility, while poor decisions can occasionally result in wins.

How does the strategy of betting in poker relate to trade sizing in investing?

The strategy of betting in poker relates to trade sizing in investing in that both require an understanding of risk versus reward. Just as a poker player must decide how much to bet based on their hand and the potential payoff, an investor must decide the size of their trade based on the potential profit and the risk they are willing to take.

What role does ego play at the poker table according to the discussion?

Ego can be a significant factor at the poker table. Players with big egos might undervalue their opponents and take unnecessary risks, potentially providing opportunities for more cautious players. However, they may also be less likely to fold, even when they should, which can be a disadvantage.

What is the importance of humility in poker and trading?

Humility is important in poker and trading because it allows individuals to critically evaluate their skills and decisions. Those who lack humility may miss important information or fail to learn from their mistakes, which can lead to poor performance over time.

How does the concept of 'bad beats' in poker relate to making excuses in trading?

The concept of 'bad beats' in poker is analogous to making excuses in trading. Players who focus on bad beats instead of their own strategy and decision-making may not improve, just as traders who make excuses for losses instead of analyzing their approach may not learn and grow.

What is the significance of the statement 'If we don't take risks, we don't make money' in the context of the discussion?

The statement emphasizes the inherent need for risk-taking in both poker and trading to achieve financial success. However, it also implies the importance of taking calculated risks at the appropriate price, ensuring that the potential reward justifies the risk being taken.

How does the discussion relate poker skills to decision-making in incomplete information scenarios?

The discussion relates poker skills to decision-making in incomplete information scenarios by highlighting how poker players must navigate uncertainty and make the best decisions with the information they have, similar to how traders must operate with incomplete market data.