Interview: Chadwick Miller
Hometown: Middlebury, Indiana Resides: London 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. online poker 468x60
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.