Interview: Chadwick Miller
Hometown: Middlebury, Indiana
Best Known For: Controlling 3% of the InTrade market for Barack Obama's chances of reelection during the 2012 U.S. Presidential campaign
This week, we spoke with Chadwick Miller about his interesting experiences with political arbitrage betting, Bitcoin mining, and his career as a financial trader. Chadwick is a unique interview for us since he is not a poker player in the sense of it being a significant part of his life. But but his experiences and background are sure to be interesting to the poker playing community.
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PokerTips.org: First off, can you provide a little background about your career and what work you're doing presently?
Miller: I graduated from Indiana University in 2007 with degrees in Economics and Finance and went to work for a Chicago based trading firm at the Chicago Board of Trade. Since then I've moved to London with the same firm and during the past 4 years I've built a trading desk specializing in European equity derivatives. We've got a solid group of guys together and we try to make the European markets as efficient as possible (while making a profit for ourselves).
You recently capitalized on an arbitrage opportunity in U.S. Presidential Election betting markets holding as much as 3% of the total contracts on InTrade for Obama to be re-elected. Can you share how you discovered and executed upon the arbitrage opportunity?
Any venue for trading intrigues me; so I had been following Intrade for quite some time and making random sports bets on UK based Betfair regularly. Intrade is an Irish based exchange where people can bet on the outcomes of many real-world non-financial events like elections or even the weather. Betfair is an exchange mainly for sports betting. On Betfair, rather than betting with the house your counterparties are other traders/gamblers. Betfair also lists political events and as it would turn out the odds implied across Betfair and Intrade were vastly different for the US presidential election. Consistently traders on Intrade were willing to bet that Obama's chances of reelection were lower than traders on Betfair. A typical price on Intrade would be $6.00 (implying 60% odds of winning) when Betfair would have 1.50 (implying 66.67% chance). Buying something on one exchange and selling that very same thing somewhere else for a profit is a trader's wet dream. Pure Plain Vanilla Arbitrage. A friend and I dove into this thing headfirst buying Obama on Intrade and selling him on Betfair. Once all the dust had settled we were up over $30k profit.
To what do you attribute the inefficiency between the two Presidential betting markets?
There's quite a few issues at work here as to why this was allowed to happen. Firstly Americans are strictly banned from Betfair. The website won't allow you access from any US IP address. So any American who wanted to express their view had to play on Intrade. Secondly, even Intrade is limited in ways. I tried to deposit some money from my Citibank account and was denied due to "The Patriot Act." (Didn't realize I was being a terrorist by trading the election) HSBC, on the other hand, had no qualms about dealing with Intrade (or Betfair for that matter).
Another issue is the capital required. Both exchanges require you to put up your entire potential loss as collateral. So even if you've locked in a riskless position, you do not have access to your capital until the election is over. For many people this is a deal breaker. My friend and I had to put up over $400k to return $32k.
And finally we genuinely believe that Intrade was being intentionally manipulated by Republican supporters. The entire rest of the world thought Obama's odds of reelection on Election Day were 80-90%. And you could put your money where your mouth was IE those were tradable prices. Intrade, however, maintained a pro-Romney bias throughout, at times having Obama's odds 15% lower than Betfair and other gambling sites! Who in their right mind thought Romney had a 35% chance of winning when Nate Silver published on FiveThirtyEight Romney's true odds should have been less than 10%? It was almost too good to be true. The day of the election you could buy Obama on Intrade and sell him on Betfair for a 15% profit. The catch? It takes time to set up the account and you need to have money ready to go. We had both.
Changing the subject, you were one of the first to capitalize on the new currency known as the Bitcoin. For our readers unfamiliar with Bitcoins, can you share with us briefly what a Bitcoin is and how you went about "mining" them?
I encourage anybody who isn't familiar with Bitcoins to do some basic reading about them and why they're a pretty cool medium of exchange and store of value. I'll give you the quick and dirty regardless.
Bitcoin is a decentralized currency that has some very novel features making it potentially one of the most disruptive (in a good way) forces to the monetary status quo in a long while. As I write this 1 Bitcoin is worth 11 US Dollars. Bitcoins are incredibly secure (counterfeiting is virtually impossible), practically anonymous, and free from any outside meddling. One thing that makes them so cool is their method of distribution. There will never be more than 21 million Bitcoins. This is fundamental to the system and the decentralized nature of the currency ensures that this will always be the case. These Bitcoins are slowly given out as rewards for donating computer processing power necessary for maintaining the network. Bitcoin security comes from some very sophisticated encryption technology paired with a "Proof of Work," method whereby people are constantly trying to find solutions to very difficult problems. It's this problem-solving work that ensures that all Bitcoin transactions are valid and no theft or double-spending occurs. As you solve these very difficult problems, you are rewarded with some of the 21 million coins. This process is called "mining." When Bitcoin was relatively new a friend and I invested in some high-end graphics cards that were excellent at solving the kinds of problems Bitcoin demanded. I'd literally turn on 4 PCs each with 3 top-of-the-line GPUs and let them run at full throttle trying to generate solutions acceptable to the Bitcoin network in order to be rewarded with Bitcoins. We were mining a handful of coins a day, but eventually electricity costs caught up to us as other participants figured out that GPUs were inferior to other pieces of hardware when it comes to mining. There are now chips designed for mining Bitcoins and nothing else. And the owners of these are getting all the new coins. Oh well. I've just been buying mine.
Bitcoin has so many potential uses it's really quite exciting. The first venue that caught people's attention was called "The Silk Road," where you could buy illegal drugs more or less anonymously on the internet. Bitcoin is perfect for these types of black-markets. Now you can buy pretty much anything from un-pasteurized honey to taxi fares with Bitcoin. And you don't have to worry about any central bank inflating supply or nosey people snooping on your activity.
What applications do you see for the Bitcoin?
Bitcoin is great because it transfers value anywhere in the world more-or-less immediately. No need for writing checks or dealing with messy wire transfers when you need to send some money. It's also under the radar and beyond the control of most traditional authorities. Since Bitcoin was released into the wild, nobody controls it. It's decentralized and widespread. Bitcoin is absolutely perfect for poker because you don't have to deal with the messy issues of dealing with US Dollar or other currency deposits or withdrawals. Instead just play poker where the stakes are in Bitcoin and convert these Bitcoin to your local currency at your own discretion. Bitcoin is also mostly impervious to fraud. If somebody sends you Bitcoins and they appear in your wallet you have 100% certainty that those are now your Bitcoins and they can't be clawed back.
How, exactly, would an online poker room operating on Bitcoins work? How would one deposit and withdraw? Would the games be played in "Bitcoins" or would Bitcoins be converted to a paper fiat currency upon deposit for gameplay?
I'd imagine people would play poker in Bitcoins and deal with the currency each on their own end. Clean and simple. The less a poker room touches real cash the less scrutiny they're going to have from authority figures.
What similarities do you see between your day job as a financial trader and that of an online poker player?
Both have risk taking, analyzing opportunities from "Expected Value" perspective, and an exciting atmosphere. Trading, like professional poker playing, essentially involves taking the money of less-informed participants in exchange for a service. For us our service is market efficiency and liquidity when required. For poker players the service is essentially the facilitation of risk-seeking behavior and just plain fun. People come to us because they have real risk they need to hedge and are happy to give up some expected value in return for that risk. People join a poker table because they seek risk and want to have fun. Either way the pros use sophisticated techniques to take a cut from the novices. The profiles of a good poker player and a good trader are basically the same and most of the guys I work with play poker. This year a guy in our office moneyed pretty well in the main event of the WSOP. Aggressive, smart play is rewarded in both trading and poker playing.
Finally, since there is some crossover appeal among poker players for the job of financial trader, what would your advice be to a poker player looking to break into the trading industry?
It's not as easy in 2012 as it was in 2007, but it should still be possible. I started by calling around to all the trading firms who traded on the Chicago Mercantile Exchange and the Chicago Board of Trade. There are dozens of small little trading firms looking for Trading Assistants who will work with traders while they learn the trading game. If you're lucky enough to be in Chicago you can trade equities, commodities, currencies - anything. New York is a bit of a different game and there's more banks with a more formal interview and hiring schedule. But banks aren't hiring as much right now. Worth a shot, nevertheless.