Next Movie Trading Mogul: The Kid Next Door?

March 12, 2010 — -- Taylor Noble calls it "a job from heaven."

Next month, New York financial services firm Cantor Fitzgerald is slated to open the Cantor Exchange, a new movie futures market -- a place that will allow experienced traders and film buffs alike to take bets on upcoming releases they think will rock (or face ruin) at the box office. It's one of two movie futures exchanges expected to launch this year.

Noble would like to sign up for the Cantor Exchange and someday, maybe try movie futures trading as a career. He's got some time to decide: At 18, Noble is still a senior in high school -- and he may not be the only teenager with visions of celluloid short sales dancing in his head.

Teens across the country have been exposed to the idea of film-based financial markets through the Hollywood Stock Exchange, a 14-year-old virtual entertainment market, also run by Cantor Fitzgerald. Using play money -- HSX's currency is officially known as "Hollywood Dollars" – the market's some 200,000 users can buy "stock" in hundreds of films, most of them still unreleased. If the films rake in cash at the box office, HSX investors see their returns skyrocket -- if the films crash, so do the investors' holdings.

For years, economics and mathematics teachers have used HSX as a tool to teach their students about everything from graphing to investing basics. Noble, of Savannah, Ga., learned about HSX through his high school economics teacher, Don Cutts. Cutts, a former stockbroker, has included HSX in his lesson plans at Savannah's Herschel V. Jenkins High School for the last four years.

"What got me going was mathematically and systematically, how brilliantly they simulate the actual operations of a stock market. Stocks go up and down because of demand and good news and bad news and rumors," he said. "So I started using it in the class and the kids wouldn't let it go."

Though it's unclear exactly how many of HSX's 200,000 accounts belong to teachers and students, the high school and college set have made their presence known on the exchange. A scan of HSX's leagues – groups of users competing against each other for the best returns – turns up names like Cuyuma Valley High School, HHS (Hingham High School) Film Studies and SJU (St. John's University) TV Center, among others.

Making Math and Economics Fun Through Movies

HSX wasn't actually formed to be a teaching aid, said Jeff Hartke, a senior market analyst at the exchange, but "clever people out there have used us as an example to talk about things that are interesting to their kids -- to show math and economic theory in a fun way, because everybody likes movies."

Cutts was pleasantly surprised by just how much HSX excited his students. He's heard them raving about their various movie investments in the school hallways. He knows many who continued playing the HSX market after graduating high school and entering college.

"It was mind boggling," he said, "Kids that I couldn't get to stay awake for 20 minutes in class were begging, 'We've got to go to the library and work on the stock exchange today.'"

The business model of HSX is based primarily on providing research on entertainment preferences – something HSX analysts like Hartke can discern thanks to users' trades – to industry clients like Warner Home Video, MGM, Fuse Networks and BET.

HSX officials stress that for HSX traders, the virtual exchange is a game. It was never intended, they said, to be a recruitment tool for Cantor Exchange, especially not for young students. (Depending on the state, young people can't open their own investment accounts on Cantor until age 18 or 21 anyway.)

But HSX was more than enough to whet Noble's appetite for the real thing. After starting on HSX, he bought a book on investing, with an eye toward making a career either in the traditional stock market or in movie futures trading.

"It grabbed a hold of me and I just started liking it," he said.

Noble currently has an HSX portfolio worth more than 19 million Hollywood dollars, a fortune he accumulated with savvy plays like a recent investment in "Alice in Wonderland," which saw a blockbuster opening last weekend. Its soaring stock netted Noble a cool 5.8 million Hollywood dollars in one day.

Noble, who plans to attend college in the fall, believes his HSX experience could translate to serious gains on the Cantor Exchange, which will begin accepting funding for customer accounts this Monday.

"I think I've learned enough, I know enough from HSX that I can make a big profit on the Cantor Exchange," he said.

But Richard Jaycobs, the president of Cantor Exchange, warns that the difference between trading on the HSX and trading on a real futures market is significant. HSX players who make the jump to the Cantor Exchange, he said, shouldn't expect the same returns.

HSX vs. Cantor Exchange

At the HSX, users trade movie "stocks" with a computer -- a "virtual specialist" that decides the price of shares and creates "a very liquid market" that make trades easier.

On the Cantor Exchange, participants will trade actual futures contracts tied to movie box office revenues -- not unlike commodities contracts on crop or energy prices -- with other movie market players, not machines.

"That's harder," Jaycobs said. "The computer makes it easier to make money than if you and I were trading together -- you might ask for more than I might be willing to pay."

"Many people at the Hollywood Stock Exchange turned $2 million" – the sum of Hollywood dollars all HSX players start with when they join the exchange – "into billion-dollar accounts," he said. "I don't think anyone can expect to make that return on the real market."

Cutts said that so far, Noble is his only student to express an interest in joining the Cantor Exchange, but that could change.

"The bridge from doing it well as a game to doing it well with real money is a real short bridge," he said. "I think there are some kids who will look at this as a future."

But Cutts also says he advises his students to stay away from all futures trading, including the anticipated movie futures markets, until they're out of college and earning a "viable" income. Until then, the traditional stock market, he said, is a less risky way to go.

Try telling that to Noble. He says he'd like to make plays on the Cantor Exchange when it opens, using money he's saved from a part-time grocery bagging job and, if he's lucky, cash borrowed from his dad.

"I'm hoping I can find me a good movie and ride that up," he said.

For now, he's concentrating on his HSX trades. He's considering a long-term investment in "Wall Street: Money Never Sleeps," the sequel to 1987's "Wall Street" starring Michael Douglas.

Not surprisingly, Noble is a fan of the first film and the sequel's trailer looked "amazing," he said.

He still has his research to do, of course.

"If I get information on it that it's going to do good," he said, "I'll invest in it."