Back To The Futures: How Bruce Kovner Used Currencies And Commodities To Build His Hedge Fund

Every trader dreams about that one big score — that monster trade where you YOLO your account into a volatile asset and manage to cash in on a 10-1 win. 

Whether it's stocks, options or crypto, reaching for the stars through increased risk sometimes tempts even the most ardent rules-based investor. But then there are some trades where you only live once (YOLO) turns into a life-long career in markets. That's what happened to Bruce Kovner, who used a credit card advance to fund his first big trade and never stopped winning.

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The First Big Win

Today, Kovner is one of the most influential voices on Wall Street and in Washington, D.C. A multitime billionaire, Kovner claims prominent roles like chairman of The Juilliard School, vice chair of the Lincoln Center for Performing Arts and member of the American Enterprise Institute board. Kovner is a self-made billionaire, but his life in high society was forged at a trading desk. And his weapon of choice?  Futures contracts.

Kovner dropped out of Havard University before graduation and floated around a few aimless jobs before finding his love of trading. While working as a cab driver in the 1970s, Kovner began to study commodities charts, like copper and soybean futures. Kovner's style was a marriage of fundamental and technical analysis, but despite his quick study, he had a significant problem — no capital. 

To fund his first futures trades, Kovner used a $3,000 cash advance from a credit card. He took that cash advance and invested in copper and interest-rate futures. His $3,000 position soon jumped to $4,000, and Kovner decided to move on to soybeans when a huge shortage developed. However, Kovner was about to learn an important risk management lesson that would stick with him for the rest of his Wall Street career.

The First Blowup

Kovner bought soybean futures, foreseeing a massive price increase as crop shortages reverberated across markets. And Kovner was correct. The price of soybeans moved violently and Kovner's $4,000 trade soon ballooned to over $40,000. 

However, shortages don't last forever, and markets have a way of returning to balance more quickly than investors anticipate. The soybean shortage was quickly followed by a downward price spike, which meant Kovner's position began taking on water. Unlike the shrewd trader who would materialize in the coming years, this version of Kovner was bold and decided to ignore his plan (and stop losses) and keep holding.

As a result, Kovner's $40,000 profit was slashed in half. Despite still netting a big win, Kovner was nauseous over the lost opportunity and dedicated the rest of his trading career to removing emotions, acting on a plan, and never letting personal feelings get in the way of making money. Kovner used these principles to land a job at Commodities Corp., which Goldman Sachs later purchased. Kovner opened his own firm, Caxton Associates, in 1983 and acted as CEO until his retirement in 2011. Today, he's worth more than $7 billion and remains passionate about education and the arts.

Kovner's trading strategy might not be emulatable, but his lessons on risk management are timeless. Think you can apply these lessons to your own futures trading regimen? Prop trading challenges like SurgeTrader's Audition allow prospective prop traders the chance to use simulated capital for actual results. For as little as $50, traders can get a $10,000 simulated account and match wits against the top up-and-coming traders. Participants who pass the first two phases move on to the virtual account, where up to 90% of profits can be returned to the trader.

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