Chess And Finance: Are They Synonymous?

The Financial Markets have a very strong relationship with Chess. There are many financial lessons this Game of Kings teaches us. Let’s look at some of these and enhance both our financial expertise and Chess skills.

The first and foremost lesson that I’d like to highlight is the presence of highly favourable opportunities which are hard to recognize. You must have the knack and ability to spot and exploit the same for utmost benefits. To hold a good position on the Board of 64 Squares or your trading portfolio you need to constantly revise your strategies as per new developments. Failure to adapt to such crucial events may result in major catastrophes. Both these games require you to take quick decisions based on strong strategic analysis, think 2 moves ahead and be confident on the moves you play. Always leave room for flexibility, being rigid on your strategies may prove to be fatal as the same needs to be revised as per latest developments. As it is commonly said, follow this rule “Don’t play the plan, play the board (market)”.

Chess has 6 types of pieces and each moves only in a certain fashion, one can draw a parallel in the way financial instruments are used as well the pros and cons of various instruments like equity, bonds, derivatives etc. which make them unique in their own way to meet different requirements. For instance, one can use both call and put options to achieve strikingly different objectives of hedging and speculating. In spite of the low returns, the certainty makes Safe Havens stand apart from other financial instruments. Hence using each instrument to its utmost potential is required to advance you’re way up in the Industry.

Take calculated risks as per your appetite and ability. Don’t shy away from risk or put everything at stake. Knowing your strengths and weak spots will help you play better on the Chess Board and off the board in Financial Markets. Talking about risks, can we make Riskless Profits? Is there a free Lunch, well who doesn’t like that? There can be situations when your opponent blunders and leaves a piece hanging. The potential to spot them quickly and correctly may lead to enormous advantages. All you need to avail your free lunch, but this doesn’t happen as often as we’d want it to. You can draw a parallel in financial markets as well, exploiting arbitrage will result in handsome profits but you can’t do this consistently (at least in relatively efficient markets)

A major concept in Chess is that of Gambit and this has a lot of financial relevance as well. You might need to make small sacrifices for larger gains. Account for the

opportunity costs and trade accordingly, before making a trade we must factor in both the losses/costs and the benefits we stand to gain. Letting go of some good opportunities may pave your way to extraordinary ones especially when you’re constrained to limited funds. Another way to look at this is that bearing insignificant amount of losses may save you from bleeding losses.

The game of chess teaches us to accept defeats and learn from its mistakes instead of giving up, we might make some bad investments from time to time. As in chess we may get trapped in zugzwang i.e. every move we can possibly make is a bad one, this can happen with our investment decisions as well. But this shouldn’t stop or deter us from moving forward. It assuredly teaches us to keep calm during turbulent times and not panic in order to make relatively wiser decisions.

Psychology plays an important role and a solid understanding of this is integral to thrive and be successful. Thinking from your opponent’s perspective adds advantage when playing on the board, the ability to do so can lead us to make large gains by being able to predict the behaviour of various investors in the market as well. This ability could help one avoid becoming victims of a slump or for that case even an economic bubble burst.

A widely held perception among those unaware about financial markets is that one can make money only when trends are bullish. An optimistic outlook is appreciated, but you can earn handsome profits in Bearish markets provided you implement the right strategies. Choose your long and short positions wisely. Move forward and backward as per the game’s need. Finance requires tactics and so does this game of 32 pieces, there are many possible patterns and strategies that can be explored to understand and get better at either of the two.

There are many styles one can adapt in both Investing and Chess, trying out quite a few of these can reveal what works best for an individual. For instance some investors may play aggressive and have larger risk appetites compared to other conservative and reserved investors, i.e. some investors prefer an equity leveraged position while others would have a large part of their portfolio in safe havens, AAA rated bonds and gold.Finally the most important takeaway is fairly simple: the more you play, the better you get at Chess. The same holds for your trading skills, you learn and certainly at a faster pace when your money is at stake, avoid mistakes and get better at the monetary game. Being consistent can prove to be very fruitful. The lowest ranked pawn promotes to a mighty queen when it consistently moves ahead and reaches the other end on the Board.

Author: Kushboo Luniya
B.Sc. Economics & Finance, University Of London

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