Shortly after I moved to New York City in 1998, a friend introduced me to the head of a local options market-making firm. A few days later, I was asked to join his team on the American Stock Exchange as a trader. Was it because of my background in finance? No, I had none. I didn’t even know the difference between a call and a put. Why did they make the offer? Because I was a top-flight bridge player, and bridge and trading had a well-known link that had been exploited before by firm heads on the floor.
Why does excellence at bridge imply the ability to trade options successfully? Can bridge playing impact other areas of life as well?
I learned the game unintentionally, at the age of 13, when an ice-storm-induced power outage in our Memphis home led my family to play multiple card games for several days straight. I was entranced by the game’s patterns and intricacies, and studied the only bridge primer we had in the house cover to cover.
I soon headed to the local bridge club to try my hand against better players. There, I watched and listened to those who seemed the most successful, respected and feared by other players. What did they know, and how did they know it? Did they ever make mistakes?
Decision-making in bridge requires multiple senses working together. You must be able to recall a complicated set of rules and standards instantly. You listen and interpret the other three players’ bids for contract size and trump suit. You notice your opponents’ tone of voice. You follow and remember the cards each opponent flips in turn as you try to glean any clues from their card order and tempo. Less tangibly, you might smell whiffs of emotion in your opponents – fear, optimism, uncertainty or even despair – inferences that could influence your strategy and plays.
How does a new player put all these pieces together?
As I got older, I dreamed of the major championships I’d win and the amazing hands I’d play against stars of the game. I hoarded bridge books. I was intent on improvement. But my tournament results barely budged.
I asked one of the top professional players how I could improve. He said gruffly, “play money bridge for stakes you can’t afford to lose.” I followed his advice, and over the next few years, played at the rubber bridge club in San Francisco, where I lived at the time. I learned to pay attention to every card. There were several late nights when my rent money passed back and forth between myself and the other players several times.
I was fiercely determined to root out and minimize errors. However, this laser focus kept previous hands’ outcomes in my mind, and it reduced my ability to remain optimistic during a session.
It also wasn’t much fun.
The accuracy of any bridge bid or card play is dependent on multiple interwoven and often qualitative factors. The choices are often not black and white. Pursuing a winning strategy becomes more like a theater production that melts into place rather than a set of probabilities to calculate. Perfect execution, under these conditions, is no longer a meaningful metric to strive for. Like theater, winning bridge demands rehearsals and intention, but also a willingness to invite creative instinct take over.
I practiced remaining calm, focused and joyful during sessions – to be consciously aware of the fun I was having – even as I carefully logged my inevitable mistakes for later review. I’m fairly sure that at the time I would have been embarrassed to describe this philosophy to any other bridge player.
In 1991, I earned my first national pairs title in Las Vegas. I won a national team championship in Miami in 1996, and another national pair’s title in Atlanta in 2005. I had arrived at the top tier of American bridge players.
Though the word “game” may convey an air of brevity and frivolity, an activity doesn’t have to be named as a game or even have a defined endpoint to behave like one. Trading in the financial markets is an example.
On the old exchange trading floors, new market makers (like myself in 1999) could expect fraternity-like initiation rites – rapid-fire market requests for trades that would never be consummated, along with verbal and physical intimidation. Under that pressure, I still had to absorb and express detailed technical information that would allow me to function as a true market maker.
In the middle of chaotic trading days, brokers would often present orders where, based on current market conditions, I could imagine taking either side of the trade. Rather than wasting energy struggling over knife-edge choices, I accepted that for many potential trades, given enough time and proper hedging, either side could be a winner. But I couldn’t stand paralyzed. I had to choose, move on, saving energy for decisions that were more significant.
I unlocked the connection: Trading equity options and playing bridge had completely different rules, a different culture, and very different stakes, but they were amazingly similar games.
Just like in bridge, there are always trading quandaries impossible to solve with the knowledge one has at hand. Just like in bridge, this does not have to be a roadblock. In financial markets, gold rarely lies under trees waiting to be gathered by correct market direction predictions. A trader (or bridge player) must mine for it by analyzing beliefs and actions that in the past turned out to be errors. Each up-tick of understanding from those mistakes yields an imperceptible increase in knowledge.
My market-making business initially had its ups and downs. Once I was more comfortable with a full range of short-term outcomes, the downs became more of a key to my success than the ups did. My business flourished, and I was well-positioned for the rapid evolution of the option market-making game that occurred over the course of the 2000s.
I look at successful and unsuccessful traders, and winning and losing bridge players, and the division I see is between those who perform as if knowledge and rules are fluid, and those who perform as if they are fixed. Concrete axioms based on decision trees can establish a mental foundation, but rarely withstand complex situations. Following them will not birth the kind of new knowledge required to progress in dynamic environments.
Most games change over time – just look at the virtually empty exchange trading floors today that networks mainly use for TV backdrops. Static strategies cannot successfully keep up with those changes. The bridge philosophy espoused in that first bridge book I read at 13, iconic for its time, would never win a tournament today. Players who suffered subpar results due to its strategies came to see them as mistakes, and searched for a better way.
Playing bridge has taught me to see errors in many areas of my life as vital fodder for improvement. While I may not look forward to them, I view them as powerful. They relieve me of solely waiting for others’ insights in order to improve how I play. I get to be one of the first to profit from my own mistakes. I consider that a win.
Ralph Buchalter is a project manager in Operations and Accounting at Och-Ziff Capital Management Group in New York. He graduated from Oberlin College with a B.A. in Math, and is a former market maker in equity index options on the American Stock Exchange.