This is an individual task. In this assessment, students are required to use the Trading Simulator tool from CME Group to trade on future products to hedge risk and/or take advantage of speculation. In the #1 trading session, you will focus on Energy Future products.
The goal of this individual assignment is to gain a better understanding of the future market and risk management process, by testing and refining your trading strategies.
Below are the steps you need to follow to accomplish the task:
Attend your local class in Week 5. Use your email address to create an account with CME Group, during the workshop.
Your instructor will use 1.5-2 hours to go through the task, elaborate the basic specs of Energy future products, explain the trading rules and demonstrate how to trade. You can start trading after instructor’s demonstration.
Your trading is to primarily hedge your risk exposure to the oil price. For student whose student number end with odd number, assume you are treasurers at airline company, and you are going to buy 10,000 barrels of jet fuel oil in 3 months. For student whose student number end with even number, assume you are jet fuel oil producer, and you are going to sell 10,000 barrels of jet fuel oil in 3 months. You aim to use Energy future products to hedge your price risk. Record the fuel price when they start to take positions on CME, to: 1) provide a background info about/justify how many contracts you go long/short, 2) show whether you succeed in hedging risk.
You have $100,000 USD cash on hand at the beginning of your trading. You must use at minimum 70% of your account balance to hedge your oil price risk. Meanwhile, you are allowed to have up to 30% of your account balance to speculating/arbitraging, and the speculation/arbitrage products are not limited to Energy futures (e.g., other future products, you can even use Crypto futures to earn short-term profit, but also mind the potential loss).
You can trade anytime after your instructor’s demonstration, till any date before 26 August 2022. You can also stop your trading before this date if you already finalized your trading strategy. You can trade as many times as you want, as long as you can justify your trading philosophy. You can do some trials at the beginning of the trading period to get familiar with the platform. When you decide to officially start to implement your strategy, please do not reset the game before your last trading date.
Note: Please remind to leave some time to consolidate your trading record and report. For example, someone wants to stop trading on 23 August 2022 and prepare the excel and report between 24-26 August, some others want to trade till 26 August 2022 and prepare the report and excel in several hours. Both are good, as long as you are confident about the quality of your submission.
You can take both long and short positions in the future contracts. Your orders might be rejected by the system because of margin shortage or market close. When your account balance drops to near zero, you are basically out of the game.
Please use the excel template to record your trading and balance on a daily basis, or whenever you make a trade. It is not necessary to flatten (close out) all your open positions. It is a good practice to keep a record on your daily account balance, profit and loss as well as open positions, to facilitate consolidating your report. Please do note that the template is just a basic version provided by the teaching team, feel free to modify it to satisfy your needs.
Based on your trading history, profit/loss from your future account, and the income/cost from your physical asset, you need to form a report to summarize your trading exercise.
Note: Since the contracts can’t be bought in fraction, a tiny variation from the specified budget is acceptable. You can choose to hold some Cash if you believe the investment opportunity is not good enough, but also need to justify this decision in your report.
CME Institute Trading Simulator
Trading Simulator replicates live futures markets by leveraging real market data. A constant stream of new prices informs your strategies for CME Group’s top products across all 6 asset classes, including Bitcoin and Micro E-mini futures. The Access to the simulator is free, all you need is a CME Group Login account, which can be created using your own email. Please create an account during the workshop.
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