Murphy’s Law

The dangerous convergence of gambling and trading

Dear readers,

The line between a casino bet and a calculated trade has never been thinner. Not that long ago, “betting on the news” was an amateur game. But in recent weeks, millions of dollars were made in hours. Prediction platforms have made rapid advances and now operate with the speed, liquidity, and information-edge incentives of commodities pits – and will soon have a large impact on them. Time to take a closer look at an emerging risk!

In 1983, Wall Street satire Trading Places was released to become one of the greatest comedy films and Christmas films ever. It launched the career of Eddie Murphy into superstardom.

In the movie, the cynical Randolph and Mortimer Duke run Duke & Duke Commodities, a large brokerage firm. They make a $1 dollar bet on their star trader, Louis Winthorpe III – will his killer instinct which he demonstrates daily at trading desks also enable him to survive when he’s stranded broke in the streets of Philadelphia? And can a jobless street hustler, given the right opportunity, become the next star banker? In a sinister experiment, the Duke Brothers frame Winthorpe for theft and drug possession and strip him of his job, his home, his fiancé, and his reputation. In his place, they elevate Billy Ray Valentina (Eddie Murphy), a street hustler, into a gentleman banker position at their firm.

But Valentine and Winthorpe team up. They realize the Dukes attempt to manipulate financial markets, stealing a governmental crop report which provides valuable information about the Florida orange harvest.

Valentine and Winthorpe replace the authentic crop report with a forgery. The Dukes are led to believe the orange harvest will be bad, and they start buying large quantities of futures contracts in the expectation that prices will rise. When the real report is released by the government, prices fall rapidly. The Dukes go bankrupt, and Valentine and Winthorpe, who bet against them, become rich. It turns out they made a $1 bet as well – “Louis bet me that we couldn’t both get rich and put you in the poor house at the same time. I won!”

The crazy thing about the movie – trading on confidential government information wasn’t even illegal at the time.