INSIDEADVANTAGE Winter 2018 AGE T AN V AD INSIDE KEY INSIGHTS Don Wilson Blair Hull Blu Putnam P. 4 P. 8 P. 12 TRADE IN YOUR COMMUTE ADVANTAGE FUTURES Trade from the convenience of the western suburbs Downers Grove Trading Facility ü 1501 W. Warren Avenue ü On-site IT support Downers Grove, IL 60515 ü 24-hour access to facilities 312.800.7000 ü Workout facility, recreation lounge www.AdvantageFutures.com ü Complimentary parking [email protected] Disclosure Statement This information is not to be construed as an offer to sell or a solicitation or an offer to buy commodities herein named. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. 2 INSIDEADVANTAGE WINTER 2018 Winter 2018 CONTENTS 4 Cryptoassets Q&A Featuring Don Wilson, DRW 8 Q&A with Hull Tactical Asset Allocation Interview with Blair Hull 12 By Blu Putnam, Chief Economist, CME Group 17 Providing the world with access to Asia By Singapore Exchange (SGX) ABOUT ADVANTAGE FUTURES Advantage Futures ranks among the high Advantage Futures is a full clearing Follow us on Twitter volume futures brokers in the industry— member of the CME Group (CME, CBOT, @Futuresnews processing over 3.8 billion contracts since NYMEX, COMEX, KCBOT), NFX (Nasdaq inception in 2003. Advantage continues to Futures Exchange)u, ICE F tures U.S., ICE expand its diverse client base by striving to Clear U.S., ICE Futures Europe, ICE Clear deliver the highest level of client service. Europe, Options Clearing Corp., CBOE Like us on Facebook Our exceptional technology support, Futures Exchange and Dubai Mercantile @AdvantageFutures experienced risk management and Exchange as well as a foreign approved responsive back oce operations combine participant of the Montréal Exchange and to provide comprehensive, technology- non-clearing member of EUREX. Advantage Follow us on Instagram driven clearing and execution services also provides trading access to major @AdvantageFutures over robust and redundant network Asian-Pacic exchanges through various infrastructure. correspondent broker relationships. Connect with us on LinkedIn To learn more about Advantage Futures, please visit our website at @AdvantageFutures www.AdvantageFutures.com or contact one of our client representatives at 312.800.7000. INSIDEADVANTAGE FWINTER 2018 3 Cryptoassets Q&A featuring Don Wilson,DRW Advantage Futures: Why ADV: What is DRW’s role in cryptocurrency markets? What does in cryptocurrencies? Cumberland do? In 2014, we formally established DW: Cumberland as a bitcoin trading Mr. Don Wilson: DRWis desk, one that is uniquely positioned between alwayslookingfornewopportunities, and we encourage employees to nascent cryptocurrencies space. Since its come forward with interesting ideas. founding, Cumberland has become one of In 2012, several employees were the world’s largest providers of liquidity in cryptocurrencies, with employees in Chicago, excited about bitcoin and how it London and Singapore. We leverage our 25 might impact the world. Because we couldn’t decide what was more markets and risk management to provide two- important, the distributed ledger sided, institutional-sized liquidity 24 hours a technology that underlies bitcoin, or day, 5 days a week. bitcoin itself, we got involved in three ADV: How has trading in these markets changed over time and, in we established a trading desk, which particular, over the last year? 2014; and we co-founded distributed These markets have continuously DW: evolved over the years, but 2017 in 4 INSIDEADVANTAGE WINTER 2018 There was a shi in the market as people continued to familiarize themselves with complex, multi-party post-trade processing. cryptocurrencies, but also started puing real The Australian Securities Exchange recently capitalintothemarkets.Thiswasevidentinthe announced that it intends to replace its dramatic growth in cryptocurrency valuation equities system with DA’s technology. It is we saw over the course of 2017 and marked a managed separately from DRW under CEO new era of exchange adoption as well; CME, Blythe Masters, and I remain a member of CBOE and Nasdaq all announced plans to list the Board. bitcoin futures contracts, with the former two launching before the close of the year. ADV: Many people said the rise of cryptocurrency trading is unlike ADV: anything they’ve ever seen. Is this is a blockchain technology underlying bitcoin? Looking at the price action over We recognized the potential of DW: thelastyear,themarketcertainly DW: Distributed Ledger Technology has many characteristics of a bubble—much like we saw with the dot-com era in the 90’s. way of tracking ownership and enables you to We believe something similar will play out. do so across multiple organizations securely. Many ideas and projects in the marketplace We wanted to explore the possibilities will fail, but that process will give rise to beer ideas and projects. Our perspective processes like clearing and selement, which led me to co-found Digital Asset. impact on the world. Digital Asset licenses DLT soware to large INSIDEADVANTAGE WINTER 2018 5 ADV: What does the launch of the While we’ve certainly seen some bitcoin futures contracts mean for the DW: vulnerabilities in this new space, cryptocurrency trading industry? bitcoin itself has never been hacked. Where you see the most risk is in the platforms built The product launches are a natural to facilitate crypto trading and storage, which progression in the maturity of this is why it is important to carefully select the assetDW: class and are overall very positive for the products and exchanges to which you connect. development of these markets. The futures We have a rigorous onboarding process, and also reopened the door to an ETF, with both we apply our 25 years of experience in risk the NYSE and Cboe announcing plans to management, operations and security to list, although the SEC recently slowed down our cryptocurrency trading practices. The that process. These are products institutional importance of sound operational practices banks are familiar with, which could bring should not be overlooked. more institutional capital into the markets, furthering the development and maturation of ADV: Wall Street banks have shown the industry. some skepticism of cryptocurrency trading, but recently seemed to have ADV: Bitcoin is making a lot of softened their stance and a few are headlines, but there are many active opening cryptocurrency trading desks. cryptocurrencies. What kinds of When will cryptocurrency become demand are you seeing for other digital more mainstream, and what does that currencies? mean for the professional individual trader? The broader interest in DW: decentralized technologies, coupled Wall Street has been slowly with the dramatic increase in bitcoin and other DW: adopting cryptocurrency over the token valuations over the last year, definitely led last year. They have been publishing research to interest beyond bitcoin. Rather than referring on these markets, and they’re definitely having to these instruments as cryptocurrencies, conversations about what is or will be their perhaps a better term is cryptoassets, which position and strategy on cryptocurrency. encompasses both cryptocurrencies as well as We see a dramatic shift in the profile of our tokens issued as a result of an ICO. Cumberland counterparties as more institutional capital is active wherever there is meaningful volume enters the space, and the institutional banks and, today, we trade over 20 cryptoassets. We are are developing and introducing their own continuously adding new tokens to our trades corporate offerings and establishing trading based on demand from our counterparties. desks. For the individual trader, that is likely a good thing because there will be a quickening ADV: Are the cryptocurrency markets of the pace at which standardized technology safe and secure? What are some things is introduced. And if more brokers compete for you do to manage the risks associated execution and routing business, that usually leads to price competition and more readily- with cryptocurrency markets? available research, which benefits the solo trader as well. Don Wilson got his start in the derivatives industry in 1989, focusing on capturing opportunities in the markets through technology, research and risk management. He founded principal trading firm DRW in 1992 while trading in the Eurodollar options pit at the Chicago Mercantile Exchange. Today, DRW has more than 800 employees at seven global offices and trades in dozens of markets around the world. drw.com INSIDEADVANTAGE WINTER 2018 7 Q&A with Blair Hull Advantage Futures: Please tell us about your early days in Los Gatos, California. What experiences were formative in you becoming a successful trader? Mr. Blair Hull: My grandfather traded stocks, and I remember watching him chart these stocks every day using high, low and close. I had no idea what he was doing, but I was hooked. As an undergraduate at University of California Santa Barbara and later in business school, I was still trying to figure out what he was doing. I concluded, for the most part, charting wasn’t of much value; however, it piqued my interest in the investment process. Blackjack was really what got me into the investment world. Ed Thorp wrote a book in which he said if you had a lot of low cards out of the deck, then you had more big cards (10s, face cards and aces). If you got a Blackjack, you were paid one and a half to one, so you had an advantage. I played Blackjack for five years, 50 days a year. William Sharpe, a Nobel Prize winner in economics, defined an investment as a sacrifice of current consumption for expected future gain. Gambling is just a sacrifice of current consumption for expected future loss. If you can actually turn the odds in your favor, you’re an investor. I was really an investor when I played Blackjack.