Chapter Three: Introduction to Finance

In early 2020, the outbreak of the pandemic brought immense disaster to humanity. Tens of millions were deeply affected; economies around the world suffered severe blows, and countless families were torn apart. At that time, people had yet to fully grasp the magnitude of what was unfolding. It was from this moment that the global financial system faced a profound turning point.

Li Fengyu was shocked by the message Li Sen sent him. Their generation hadn’t experienced anything like this before—the last crisis was during the SARS epidemic. Only now did Li Fengyu and Li Sen understand why they had been urged to return home in such a hurry back then.

“Seriously, Brother Sen? Something this big has happened?” Li Fengyu messaged in disbelief.

“Yeah, I don’t really know what’s going on either. With this situation, school will definitely be delayed,” Li Sen replied from the other side of the phone.

“But Brother Sen, according to the news and the updates online, it doesn’t seem that serious yet,” Li Fengyu said, sending a voice message while checking the information.

“Hmm, we should still follow the government’s advice and stay home,” Li Sen said in response.

After ending the call, Li Fengyu was about to shut down his computer when his eyes caught a colorful icon in the corner of the desktop—XX Futures, a software used for trading industrial goods, chemicals, agricultural products, and more. Rising from his chair, he unplugged his headphones and walked into the living room, pointing at his study as he asked his father, “Dad, what’s that on my computer? Have you been using it?”

“Oh, my computer broke down. I copied it from yours but forgot to delete it,” his father said absentmindedly, adjusting the TV remote.

What was said casually struck Li Fengyu’s curiosity. After returning to his room, he started fiddling with the software. He gazed at the red and green candlestick charts and volume bars, the myriad of lines representing moving averages, and the dense array of prices—opening, closing, highs, lows. Clicking around randomly, he suddenly felt energized. He rushed back to the living room and declared, “I want to learn this.”

“Alright, but this stuff can only be understood through intuition, not taught in words. Everyone has their own perspective. I’ll give you the course materials; you study them yourself,” his father replied without hesitation.

Normally, this kind of encouragement would be unlikely, but Li Fengyu’s family was different. His father was a professional financial expert with a keen sense of judgment, so he didn’t stop him. In an ordinary household, this would have been unacceptable. Besides, his father figured Li Fengyu’s interest wouldn’t last long—he had no account and no money, so no real harm could come of it. Little did his father know that this simple encouragement would, three years later, lead to the rise of the youngest financial capital prodigy in world history. His renown would spread from London’s financial district in the Northern Hemisphere to Wall Street in the Western Hemisphere. He would lead his investment team in a sweeping chapter of modern economic history. But that was still a story for the future. For now, he was just an unknown ordinary young man.

Li Fengyu first opened a menu showing categories like black metals, chemicals, agricultural products, and more. He looked up each one online to understand their meaning. Essentially, these were investment items—buy low, sell high. That was the gist of it.

Futures trading, he learned, had a long history. Unlike spot trading, which involves the immediate exchange of physical goods, futures contracts are standardized agreements to buy or sell a commodity or financial asset—such as cotton, soybeans, oil, stocks, or bonds—at a future date. These contracts could settle in a week, a month, three months, or even a year.

The contracts themselves are called futures contracts, and the place where they are traded is the futures market. Investors use futures for investment or speculation.

The futures market originated in Europe. As early as ancient Greece and Rome, there were central trading places and bulk barter exchanges, with transactions resembling futures trading. The earliest futures trading evolved from spot forward transactions. The first modern futures exchange was established in Chicago in 1848, and by 1865 the standardized contract model was established. In the 1990s, modern futures exchanges emerged in China, including the Shanghai Futures Exchange, Dalian Commodity Exchange, Zhengzhou Commodity Exchange, and China Financial Futures Exchange. The price fluctuations of listed futures products on these exchanges have had a profound impact on domestic and international industries.

A major difference between futures and stocks is that futures allow for two-way trading—you can go long or short. When prices rise, you buy low and sell high; when prices fall, you sell high and buy low. Both long and short positions can generate profits, meaning futures have no bear market. Even when stock markets slump, futures markets can still thrive, offering opportunities.

The leverage principle is the allure of futures investing. In the futures market, you don’t need to pay the full amount upfront. In China, you only need to pay a 5% margin to gain the right to trade. This margin amplifies market movements by more than ten times. Suppose copper hits its daily limit up (3% above the previous day’s settlement price); if your trade is correct, your return on capital could be as high as 60% (3% divided by 5%), which is six times the return of a stock hitting its daily limit. (Opportunities are where profits come from.)

As Li Fengyu read these materials online, his excitement grew intensely.

He often dreamed of becoming a hero like Frederick the Great of Prussia or Chancellor Bismarck, or perhaps like Peter the Great and Catherine the Great of Russia—heroes emerging in chaotic times, remembered forever in history. But in today’s world, such dreams seemed unlikely. So he pinned his hopes on futures trading, aspiring to achieve youthful brilliance and bring honor to his family. He began studying obsessively, even visiting the local securities exchange. Among the many traders there, he was the youngest. Quietly and curiously, he wandered about.

“Hey kid, what are you doing here?” a mature voice sounded behind him.

“N-nothing,” Li Fengyu replied timidly, startled.

A tall man in his forties, dressed in a security uniform, appeared before him and said, “What’s a kid like you doing here? This place is for adults.”

“I came alone. I want to trade futures,” Li Fengyu said.

“Alone?” The guard stared at him incredulously.

Li Fengyu replied calmly, “My father works in finance. I’ve grown up around it and know a bit. I just wanted to take a look.”

“Oh, I see. Well, alright then. But don’t wander around—everyone’s working. Just watch the market in the main hall,” the guard said before returning to his post.

Only then did Li Fengyu notice a large electronic screen in the center displaying stock information and trading options. It was something of an antique relic. Around the early 21st century, all trades took place in the hall, but now everyone used their phones, and this screen was kept as a decorative commemorative piece. Li Fengyu took out his phone and snapped a picture before pocketing it.

Afterward, he returned home and turned on his computer to continue reviewing market data. It was January 13, 2020; the cultural commodities closed at 150.65. After a prolonged decline with no signs of bottoming out, the overall commodity prices were relatively low, and trading volume was expanding, indicating the inflow of capital. With some study and his father’s guidance, Li Fengyu sensed the market was nearing the bottom. Combining his knowledge, he set his sights on iron ore.

Iron ore belonged to the black metals sector, which also included hot-rolled coil, rebar, manganese silicon, and ferrosilicon, with coal indirectly related. Historically, iron ore’s price movements were stable and it was always a star commodity. Recently, significant capital had begun flowing in, with MACD and Bollinger Bands showing promising patterns. Li Fengyu drew a horizontal line at a certain price point on the September iron ore contract—representing a buy signal since he had no funds yet. This was his first-ever trade. Three years later, when he was at the helm of power, he would still tell his subordinates, “That was when I was at my most spirited.” But that was a story for another time.

Just as his enthusiasm was rising, the silence was broken by the ringing of the phone.