The detailed requirements for this task are as follows:
You will be given a notional $250,000 which is to be used to trade on the FOREX futures market. The objective of the
assignment is so that you gain an understanding of what factors make the currency markets move and also what is a
significant movement in terms of profit and loss.
You are restricted to the following markets and you should select just ONE currency to trade:-
Futures traded on the IMM:
• Euro/US$
• British Pound/US$
• Japanese Yen/US$
You are also restricted to TEN trades in total (5 open and 5 closing). This is a maximum, not a minimum. When you change
“direction” or increase the size of a position you must close the existing trades first. This is to enable it to be
easier to verify the accuracy of your trades.
You should only trade the Sept 2015 contracts. You may begin trading at any time. All trading must finish on or before
Monday 20th July and you must trade for a minimum period of 10 working days (defined as “marking to market” on 10
occasions, i.e. having 10 settlement prices). Your written work must then be submitted (to the school office in MX
Building) by Friday 25th July 2015. Please refer to ‘What should be included in the report?’ for more information on how
to structure your work.
You are advised to spend some time researching the assignment and perhaps “paper trade” for a short time before embarking
on your actual trades.
You can however begin trading at any time as long as you complete trading by Monday 24th March 2014 and trade for a
period of ten working days. Hence it is vitally important that you commence trading as soon as possible.
The details of each trade must be entered on-line at:
https://docs.google.com/forms/d/1CN_NDyG0wZDPYJtmeNJ_GmWTWW8agEwOg_Q01Y0wmOY/viewform
You will be required to provide the following information when completing the trade form:
1) Student Number
2) Type of Trade (Opening or Closing)
3) Direction of Trade (Long or Short)
4) Currency Pairing
5) Number of Contracts
6) Current Price
Live futures prices are also available on-line at the CME (www.cmegroup.com).
You should trade on the GLOBEX prices. GLOBEX is an electronic platform and so the price is constantly changing although
the most active trading period is during office hours Chicago time
(https://www.timeanddate.com/worldclock/city.html?n=64) which is 6 hours behind GMT. At around about 11pm (GMT) the
prices will disappear for around 15 minutes whilst a settlement (Sett) price is recorded. This is the price used to
undertake the “marking to market” each day.
The table below shows how the prices are quoted on the CME website. You trade at the last but your marking to market
takes place at the Sett.
The Sett. here refers to the Settlement Price recorded on the last trading day (here that was 4th January 2011).
You should also construct a spreadsheet to keep track of the dollar value of your portfolio daily throughout the trading
period. A printed copy of this spreadsheet should be incorporated with your written work. You should end up with a time
series of dollar values of the portfolio over the trading period. You must also show the following:-
• The percentage rate of return over the trading period.
• The average daily percentage change in the value of your portfolio
• The standard deviation of the daily percentage changes.
• Information (Sharpe) ratio
Other rules include:-
• Round turn commission on futures is $25 per contract.
• Margin requirements on futures contracts are as follows (initial/maintenance):-
Yen ($3,300/$3,000)
Pound ($1,375/$1,250)
Euro ($2,200/$2,000)
source: cmegroup.com, 30/05/2014
• If you find that you have insufficient dollars to meet margin payments then you must close a futures position.
• No borrowing is allowed.
• To minimise computation cash may not be invested overnight in the money markets or invested in any other securities
that earn a rate of return.
• Before you submit your work you MUST close out all of your futures positions. You will be penalised for fabricating
trades to minimise losses and/or amplify profits.
• The face value of the $/Yen future is Yen 12,500,000.
• The face value of the $/£ future is £62,500.
• The face value of the $/EURO future is EURO 125,000
What should be included in the report?
Students should essentially include the reasoning behind each of the trades and as this coursework is a little different
from others you may be confused as to how to structure it. The advice is to structure it like an events study, linking
trade reasoning and evaluation to the information that was considered prior to trading. These strategies could take the
form of new reports or fundamental and technical analysis of the respective currency parings.
Students will also be required to benchmark and critically evaluate the performance of their portfolio. This should
appear in the report under the heading of ‘Evaluation of Portfolio Performance’.
Enter into the spirit of the coursework. The list of trades that your calculations are based on should tally with the
trades you entered. If you realised after the event that you made a mistake then own up to it, accept a mark deduction
and list it as an error. Note that all your trades will be recorded online so please refrain from fabricating/changing
trades. Please be honest!
Students will have to include the following tables:
Record of Trades
Date & Time Trade Currency Contracts Maturity Price
Errors:
1.
2.
3.
4.
At some point in the work you are going to have to reveal your overall result which I would like presented as follows:
Date Total % return
Total Gross Profit in dollars after trading:
Total Net Profit in dollars after trading:
Percentage return (2 decimal places):
Standard deviation of returns (2 decimal places):
Information Ratio (2 decimal places):
The “Total” figure here refers to the total value of your portfolio when the positions are valued at the end of each day
in the marking to market process plus any cash that you have. You only have one “Total” figure for each day.
Everything should tally. The “Profit/Loss” referred to above should be verifiable by me from the list of trades you
entered. The “Total Gross Profit” figure that you quote should then be the sum of all the individual profits for each
trade. The “Total Net Profit” should be the “Total Gross Profit” minus total commission paid.
Embed all tables into the text. Even if this means using scissors and glue! For the more technically adept use copy and
paste or for charts/images from webpages you can use screen capture function.
Information Ratio Benchmark 1 (Dow Jones) = -0.1594
Date Portfolio Dow Jones Tracking Error
1-Mar-12 -0.2876
2-Mar-12 -2.1322 -0.9828 -1.1494
5-Mar-12 -2.7041 -0.5258 -2.1783
6-Mar-12 0.9220 1.3044 -0.3823
7-Mar-12 0.5743 -0.1240 0.6983
8-Mar-12 -0.5321 0.5598 -1.0918
9-Mar-12 0.2609 0.1274 0.1335
12-Mar-12 0.0260 0.3446 -0.3186
13-Mar-12 -0.1821 -1.9699 1.7878
14-Mar-12 0.6386 0.4757 0.1629
15-Mar-12 0.1425 0.2166 -0.0741
16-Mar-12 0.7112 -0.4052 1.1164
19-Mar-12 0.3210 0.9559 -0.6349
Ret = -0.1724 -0.0020
St dev = 1.0694
Information Ratio Benchmark 2 (NASDAQ) = -0.1324
Date Portfolio NASDAQ Tracking Error
1-Mar-12 -0.2876
2-Mar-12 -2.1322 -1.5061 -0.6261
5-Mar-12 -2.7041 -1.1537 -1.5504
6-Mar-12 0.9220 1.8994 -0.9774
7-Mar-12 0.5743 -0.4402 1.0145
8-Mar-12 -0.5321 0.5512 -1.0833
9-Mar-12 0.2609 -0.0075 0.2685
12-Mar-12 0.0260 0.6174 -0.5913
13-Mar-12 -0.1821 -2.1529 1.9708
14-Mar-12 0.6386 0.9006 -0.2620
15-Mar-12 0.1425 0.2935 -0.1510
16-Mar-12 0.7112 -0.2539 0.9652
19-Mar-12 0.3210 0.9167 -0.5957
Ret = -0.1628 -0.0280
St dev = 1.0189
Information Ratio Benchmark 3 (S & P) = -0.1556
Date Portfolio S & P Tracking Error
1-Mar-12 -0.2876
2-Mar-12 -2.1322 -1.1403 -0.9919
5-Mar-12 -2.7041 -0.9408 -1.7633
6-Mar-12 0.9220 1.5494 -0.6273
7-Mar-12 0.5743 -0.2465 0.8208
8-Mar-12 -0.5321 0.7127 -1.2447
9-Mar-12 0.2609 0.0678 0.1932
12-Mar-12 0.0260 0.2680 -0.2420
13-Mar-12 -0.1821 -2.0368 1.8547
14-Mar-12 0.6386 0.6691 -0.0305
15-Mar-12 0.1425 0.3684 -0.2259
16-Mar-12 0.7112 -0.3828 1.0941
19-Mar-12 0.3210 1.0894 -0.7684
Ret = -0.1628 -0.0019
St dev = 1.0346
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