For as long as he can remember, Bob Kapp has loved games of strategy and probability.
“Cards, chess, you name it,” he says. “Anything that makes you think strategically.”
A Virginian by birth, he’s lived in London for more than a decade and is now the senior carbon trader at Macquarie Bank, a career that began while studying government and economics at the College of William and Mary in the early 1990s.
“They had just started offering a new major called public policy, which combined my two areas of study,” he says. “That’s where my aspirations lay; I was even a page in the state Senate.”
But an internship at a local stock brokerage piqued his interest in markets, and he started trading currencies with just $2,000 in risk capital. “I found myself drawn to the battle of wits,” he says. “Trading gives you a chance to analyze and to think, but also to put your money where your mouth is.”
And he learned fast. “It’s hard to pay the bills in this business if you don’t know what you’re doing,” he laughs.
The real learning, however, began a year later, when a friend he had met through trading helped him land a job with options market maker Zahr Trading on the floor of the New York Mercantile Exchange (Nymex).
“I was a clerk and got yelled at and all that good stuff, but I also got to learn a bit about energy and a bit about options,” he says.
After a year and a half in the pits, he accepted an offer to set up the natural options book for Equitable Resources, which eventually got bought up by American Electric Power (AEP). They told him he could either stay in natural gas and move to Ohio or stay in Texas and trade west coast electricity.
He chose to learn the electricity markets, and in 1999 heard AEP was opening an operation in London.
“It was before the craziness in the U.S. power markets, and was a good time to come over here,” he says. “I made it quite clear that I was interested in the London job.”
Building an operation from scratch meant analyzing the company’s needs and building a desk accordingly. He decided to focus on German electricity, UK electricity, and UK gas. Over the next few years, as the office grew, he’d set up a desk, help trade it, and then move on, learning along the way the vagaries of the different European power markets.
Then came the Enron implosion, and AEP decided to pull out of Europe. Kapp took a few years off to travel, and by the time he got back into trading, carbon was a viable part of the energy complex.
“It’s a fascinating market,” he says. “It’s part public policy, which I love, and it’s part energy demand, which I also love.”
His trading style is a hybrid of fundamental and technical analysis: he begins with a fundamental view of which direction the market is heading, and then uses technicals to time trades within that view.
“Like with all markets, carbon keys off of some things on some days and other things on other days,” he says. “Some days, we’re lock-step with crude; other days, it’s all about the euro.”
The key to successful trading, he says, is knowing your own self.
“You can have different personality types do well and in completely different ways, as long as they act in accordance with their own view of the world,” he says. “If you’re a big swinging trader, then you should trade that way; but if you’re a conservative type of person who can’t handle risk, you’ll find it emotionally hard to trade aggressively.”
He characterizes his own style as “big but nimble,” which means large, aggressive positions but a quick exit if things don’t go as planned.
“I experimented a lot when I was younger, and even worked with a friend on TradeStation to try and build a system, but that wasn’t my style,” he says. “It wasn’t interesting enough or engaging enough; I like to feel the ebbs and flows of the market.”
He isn’t married to any single indicator or trading approach, and says his only secrets are his years of experience and his true fascination with both energy demand and public policy, and the fact that he relishes the challenge of making good decisions on a daily basis within the constraints of parameters that are constantly changing.
“One good thing about trading is you know exactly where you are at the end of the day,” he says. “That fits my personality, because I don’t have the staying power to work six months on a project to have it come together for one day.”
In carbon, he says, he’s found the best of all worlds: a challenging game, a money-maker, and the chance to do some good.
“The ultimate goal is to figure out the optimal way to reduce emissions, and that’s what this market does,” he says. “It rewards creativity and efficiency, so that in the end, we all win.”