The detailed requirements for this task are as follows:
You will be given a notional US$250,000 which is to be used to trade on the FOREX futures market. The objective of the assignment is so that you gain an understanding of what factors make the currency markets move and also what is a significant movement in terms of profit and loss.
You are restricted to the following markets and you should select just ONE currency to trade:-
Futures traded on the IMM:
• British Pound/US$
• 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 March 2015 contracts. You may begin trading at any time. All trading must finish on or before Friday 20th December 2014 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 17th January 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. If you haven’t begun trading by Monday 8th of December 2014 then you will be deemed to have failed the assignment as you will then have insufficient time to undertake 10 days of trading.
You can however begin trading at any time as long as you complete trading by Friday 20th December 2014 and trade for a period of ten working days. Note that the last day of trading for the March 2015 contracts is Monday 16th March. After this date there is no trading and therefore no prices available. Hence it is vitally important that you commence trading as soon as possible.
The details of each trade must be entered on-line at:
Note: This link will also be available on your WOLF topic for 7FC002 International Finance
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 (http://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 $25 per contract.
• Margin requirements on futures contracts are as follows (initial/maintenance):-
source: cmegroup.com, 30/05/2014
• If you find that you have insufficient dollars to meet margin payments then you must close a futures position.
• No borrowing is allowed.
• To minimise computation cash may not be invested overnight in the money markets or invested in any other securities that earn a rate of return.
• Before you submit your work you MUST close out all of your futures positions. You will be penalised for fabricating trades to minimise losses and/or amplify profits.
• The face value of the US$/Yen future is Yen 12,500,000.
• The face value of the US$/£ future is £62,500.
• The face value of the US$/EURO future is EURO 125,000
What should be included in the report?
You 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.
You 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. These trades will be monitored and if it is found that such events are taking place, penalties of up to a 100% mark deduction will be imposed.
You will have to include the following tables:
Record of Trades
Date & Time Trade Currency Contracts Maturity Price
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 the screen capture function.
The following information is important when:
• Preparing for your assessment
• Checking your work before you submit it
• Interpreting feedback on your work after marking.
The module learning outcomes tested by this assessment task are indicated on page 1. The precise criteria against which your work will be marked is as follows:
• Content and theory
• Secondary research
• Critical analysis
• Academic writing
• Presentation and referencing