FM: Is the energy trading program you helped to build at Tulane different than how you first envisioned it?
JL: When I was first asked to "help" with the program, the beautiful $3 million facility had 28 stations with no commercial software and no trading platform. Now we have two trading rooms with a combined seating capacity of 84 stations with the world's leading commercial software: Thomson Reuters, Trading Technologies and Logical Information Machines (LIM) and [more than] 22 live feeds into the facility with a special direct data feed from the Chicago Mercantile Exchange.
What makes this environment unique is that we have worked extensively with our technology and data partners to develop both a live and simulated integrated environment that allows students to trade commercial products as if they were actually transacting in live markets. This took some proprietary coding on our part as well as the creative and incredibly supportive and talented Thomson Reuters and Trading Technologies folks (and at every level in their respective firms — including the support and vision of the presidents of their companies).
FM: What skills do you want your students to get from the program?
JL: They have to be prepared for the way energy companies used to trade because a lot of firms are at different places in their evolution. Some still are doing things the way [they] were done 20 years ago, so they have to know the way things were. Then they have to know the way things are done today, and that involves a whole host of skills and techniques. And they have to be prepared for the things that are coming in the future. That is why you see things like algo trading and being able to do high-frequency trading, because they have to be prepared for it.
In the basic energy trading class (undergraduate and graduate):
- Understand energy fundamentals, including exploration, production, transportation, storage and marketing information and inter-relationships.
- Understand energy market contracts, forward curves, liquidity, margin requirements and how to trade such contracts in both an open outcry and electronic trading environment.
- Research, analyze and develop fundamental and technical energy trading strategies presented in a concise written and verbal format.
- Use Reuters 3000xtra, Trading Technologies X_Trader®, LIM and related excel modeling tools.
- Develop trading and position mark-to-market models.
- Trade natural gas, crude oil, heating oil and gasoline from the perspective of a broker, consumer, producer, refiner and speculator using integrated trading models, time spreads and crack spreads while trading illiquid periods using hedge ratios.
- Develop product price research and forecasts.
- Understand the use of derivatives and risk management tools.
- Understand from first-hand experience of the various roles of trading personnel, including research, trading and position monitoring/tracking, as part of the trading team simulations undertaken.
In the Advanced Energy Trading Class (graduate-level only):
- Understand energy derivative market-making, valuation and advanced energy financial engineering techniques and requirements.
- Understand exchange and over-the-counter energy option contracts and their related valuation, trading, liquidity and arbitrage, as well as how to trade such contracts in a highly-technical and fast-paced environment.
- Research, analyze and develop energy risk management and valuation strategies presented in a concise, professional written and verbal format.
- Develop oil & gas planning and field valuation models, related credit and financing models and derivative trading and valuation models.
- Trade natural gas, crude oil, heating oil and gasoline options from the perspective of a producer, consumer and refiner, as well as a derivative trader and/or market maker using integrated trading models.
- Re-value public energy company derivative portfolios based on independent energy market data sources.
- Develop Algorithmic Delta hedging models and use these models while trading OTC derivatives portfolios interacting with current and former major Wall Street managing directors participating in the class.
- Develop Algorithmic trading models where their grade is based upon the results of how the model performs against the live markets!
But we didn't stop there. We created a new one-year Masters in Energy Finance and Trading degree in which the above two courses are only two of 14 in energy that the students will be exposed to.
FM: If they aren't doing high-frequency trading, they will be competing against it.
JL: That's right. That is really what we were trying to address. What are the skills, if you were recruiting today for that next generation, [you would want]? What do you want them to know and what attributes do you want them to come away with? That is why we developed a new one-year masters degree, because it was more than we could do in the one-to-three energy classes that the kids normally were getting. So we created 14 courses in a one-year program that said this is the combination of everything we think you should know, and put it in a specialized masters degree in energy finance and trading.