The King of Chicago Trading Wants to Build a GPU Market Bigger Than Oil

Tracy Alloway (0:02)

Bloomberg Audio Studios, podcasts, radio, news. Hey there, Odd Lots listeners. You are about to get a conversation with Don Wilson, founder and CEO of DRW, sometimes called the smartest man in trading. This was recorded live on stage at Chicago's Untitled Supper Club. We had a blast and we hope you'll enjoy the show. All right, Don, well, thank you for being here. Really appreciate it.

Don Wilson (0:40)

Great to be here.

Tracy Alloway (0:41)

Truly the perfect guest to talk about what's next in trading. But just to begin with, why GPUs?

Don Wilson (0:48)

Well, obviously, AI is becoming more and more useful. And as it becomes more useful, people use more of it, which means they need to use more GPUs to run inference or train new models. And I actually have this theory that within the next 10 years, the world will spend more per year on GPUs than it does on crude oil. And that would of course make GPUs compute the largest commodity in the world. So it seems like you would kind of need a market for that.

Tracy Alloway (1:22)

A very modest call. Just the largest market in the world.

Don Wilson (1:26)

Yeah.

Joe Weisenthal (1:27)

It's funny because I associate oil often coming out of sandy deserts, but now they're literally turning the sand via chips into the commodity itself, or like breathing life into the sand. Just to back up, I have a million questions about this. For those who don't know, why don't you give us the 30-second or the 45-second description of what you do or what DRW is?

Don Wilson (1:52)

Yeah. I started off standing in the trading pit in Chicago in the Eurodollar option pit, yelling and screaming, and then I would go home and write code on my Macintosh computer and build models. Essentially, I don't stand in the pit and yell and scream anymore. Most of the pits are gone, but we do the same thing now with computers.

Tracy Alloway (2:13)

I heard a story that you were once on vacation with your family, and you were in Italy, I think in Florence, and instead of, I don't know, eating gelato or something like that, you decided to invent a new Greek letter for derivatives trading.

Joe Weisenthal (2:28)

This is cool.

Don Wilson (2:29)

Yeah. So here, I mean, you're confusing two stories.

Actually, what happened was there was a new exchange that had launched an interest rate swap futures contract. It was called IDCG. And I looked at the contract and I figured out that actually they had not designed the contracts properly. And so although they were telling everybody that it was economically equivalent to a regular interest rate swap, it wasn't because it had this additional convexity bias in it, which is, we could talk about convexity bias. It goes even more in the weeds than a lot of your podcasts go into. But so when I was in Florence, I had this idea of how you could create an interest rate swap futures contract without this convexity bias problem. And that is what I focused my time on there.

Joe Weisenthal (3:21)

What was the letter?

Don Wilson (3:22)

So back to the letter.

The letter was about, after a really unpleasant period in the Eurodollar option pit, where all the market makers lost tons of money because the shape of the skew shifted dramatically as the Fed started hiking in a very predictable manner. And nobody had really developed a measure for linear skew. And so during the week, I said, well, this isn't that much fun. We're losing a lot of money every day. But the good news is that that means we have something to learn. And so I spent the weekend working with the Quantz and we came up with kind of a measure of the linear skew between the calls and puts. And decided to use the Greek letter Psi to describe it. And, you know, so by Monday morning, we had put it into the risk and onto the sheets. And before the open, I explained to the traders how to talk about it, how to use language around it. And before you know it, we had made the money back because we were able to trade, manage this risk better than anybody else, because we had a whole language around it.

Joe Weisenthal (4:34)

Amazing.

Tracy Alloway (4:35)

So we've established your street cred when it comes to solving problems in contracts for financial instruments. If I think about a GPU future or something like that, the first problem that comes to my mind is standardization, because of course, all different types of chips, different types of memory, different latency, I guess. How do you go about addressing that?