Entrima Guide TradingSimulations 20200903 · Entrima possesses the intellectual property of the...
Transcript of Entrima Guide TradingSimulations 20200903 · Entrima possesses the intellectual property of the...
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 1 - 106
TRADING SIMULATIONS
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 2 - 106
CONTENTS
Copyrights & intellectual property 6
Disclaimer 7
PART I: GENERAL INFORMATION – Suitable for anyone 8
Chapter 1: Tool box – Transform knowledge into skills 9
Chapter 2: Target groups – Traders & non-traders 10
Chapter 3: Study advice – Recommendations 11
Chapter 4: Different levels – Suitable for any target group 13
Chapter 5: Different products – Suitable for any commodity market 14
Chapter 6: Learning objectives – What is in it for you? 15
Chapter 7: Subscription – Group or individual 17
PART II: TECHNICAL DETAILS – User instructions 18
Chapter 8: Browser-based solution 19
Chapter 9: General introduction – Market dynamics 20
Chapter 10: Perspectives – Your role & responsibilities 21
Chapter 11: Technical aspects of relevance – User instructions 23
Chapter 12: Limit structures – Your mandate 27
Chapter 13: Reporting – Market analysis & feedback on your performance 28
Part III: OVERVIEW – Simulations 32
DEMO : Free trial – Try out & experience look & feel 35
FUNDAMENTALS: GENERAL
Simulation 1: Market analysis 36
Simulation 2: Screen-based trading – Hitting & lifting 37
Simulation 3: Financial performance – Realised & unrealised P/L 38
FUNDAMENTALS: FORWARDS & FUTURES
Simulation 4: Speculation – Proprietary trading 39
Simulation 5: Margin requirements – Initial margin & variation margin 40
Simulation 6: Exposure assessment – Risk quantification 42
Simulation 7: Value at Risk – VaR 43
Simulation 8: Forward curve – Graphical representation 45
Simulation 9: Futures – At position level 46
Simulation 10: Futures – At portfolio level 48
Simulation 11: OTC-trading – Screen-based brokered deals 50
Simulation 12: OTC trading – Quote requests 51
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Simulation 13: Liquidity – Central order book & market depth 52
Simulation 14: Central order book – Order initiation 53
FUNDAMENTALS: OPTIONS
Simulation 15: Options – Call option 54
Simulation 16: Options – Put option 55
Simulation 17: Option trading – Speculation 56
Simulation 18: Option arbitrage & synthetics 57
Simulation 19: Option strategies 58
Simulation 20: Options – The Greeks 60
Simulation 21: Options – Delta-hedging 62
ESSENTIALS: COMMODITIES & ENERGY
Simulation 22: Oil – Quality spread 63
Simulation 23: Oil – Location spread 64
Simulation 24: Oil – Time spread 65
Simulation 25: Oil – Crack spread 67
Simulation 26: Oil – Asset-backed trading 69
Simulation 27: Gas – Quality spread 71
Simulation 28: Gas – Location spread 72
Simulation 29: Gas – Time spread 73
Simulation 30: Gas – Spot market & beyond 75
Simulation 31: Coal – Quality spread 76
Simulation 32: Coal – Location spread 77
Simulation 33: Power – Location spread 78
Simulation 34: Power – Spark spread 79
Simulation 35: Power – Asset-backed trading 81
Simulation 36: Power – Spot market & beyond 83
Simulation 37: Agricultural – Soft commodities 84
Simulation 38: Agri – Corn futures 86
Simulation 39: Agri – Wheat futures 88
Simulation 40: Agri – Soy crush spread 90
Simulation 41: Agri – Asset-backed trading (soy valuye chain) 92
Simulation 42: Metals – Gold trading 94
Simulation 43: Metals – Aluminium futures 96
Simulation 44: Metals – Steel futures 98
Simulation 45: Metals – Copper futures 100
ESSENTIALS: FOREX
Simulation 46: FX markets – Currency exchange rates 102
Simulation 47: FX trading – Broker-dealer at a bank 103
ASSESSMENTS: CAPABILITY TESTS
Simulation 48: Assessment – The right skills for a trader? 104
Simulation 49: Quote requests – Act as liquidity provider or market maker 105
Contact details 106
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COPYRIGHT & INTELLECTUAL PROPERTY
Entrima concerns the developer, publisher, operator and copyright holder of the Online Trading
Simulations. Entrima possesses the intellectual property of the Online Trading Simulations.
Save for legal exceptions, nothing in these simulations may be copied and/or made public without the
written consent of the owner of the copyright and publisher of the simulations.
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DISCLAIMER
The simulation environment allows users to run simulations in the field of trading in wholesale markets
for physical products, such as commodities and energy, and financial instruments. Any of these
simulations concern a simplification of reality. Users run a dummy account; the trading simulations do
not involve a real market, nor real money.
No rights can be claimed from the simulations and the participation by a user. The developer,
publisher, operator and/or copyright holder(s) cannot be held responsible. In no way, developer,
publisher, operator and/or copyright holder(s) can be held liable for consequences of this simulation.
The simulations are a simplification of reality. Hence, the information provided brings along limitations.
In general, no conclusions can be drawn on the basis of the simulations, its scenarios and the results of
the users. Results achieved do not assure any (positive or negative) future performance, not during the
simulations, nor in real life. The trading simulations, including the information provided, scenarios
reflected and results achieved, are not intended as trading advice, nor as a recommendation for making
particular investments, submitting certain orders, entering into specific transactions or positions, or
performing certain business activities.
Furthermore, the simulations do not provide legal advice. All content is provided on ‘best effort’ and
‘best knowledge’ basis. The developer, publisher, operator and/or copyright holder(s) do not accept
liability for any views expressed as to the legal application of any law or its implementation. The
developer, publisher, operator and/or copyright holder(s) have allocated their expertise and experience
to develop and produce simulations which can be considered to be based on ‘best efforts’.
Whilst every effort has been made to ensure that the information contained in the simulations is
correct (or as realistic as possible) and that there are no errors or omissions, no responsibility is
accepted as to the accuracy or completeness of the statements, facts and examples included herein,
and no liability is accepted whatsoever on the part of the developer, publisher and operator and/or
copyright holder(s) for any loss or damage whatsoever, howsoever caused, arising from the use of the
simulations. Although the content and context of the simulations have been put together with the
greatest care and attention, no liability can be accepted for incompleteness or unrealistic aspects or
scenarios, interim changes in the information, or for possible mistakes.
This document must be considered in conjunction with the document “General Terms & Conditions
(for individuals & organisations concerning Entrima’s Online Trading Simulations)”.
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TRADING SIMULATIONS
PART I:
GENERAL INFORMATION SUITABLE FOR ANYONE
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CHAPTER 1:
TOOL BOX – TRANSFORM KNOWLEDGE INTO SKILLS
Entrima’s Trading Simulations provide any user an excellent tool box to apply what one knows, to apply
what has been learnt, to leverage on one’s experience, to extend one’s skills, to optimise one’s existing
competences and to perfection expertise, all in the field of markets, market working, price formation
and trading (trading strategies and trading technicalities).
The Trading Simulations mimic market dynamics and trading activity. A user can perform screen-based
trading, via a front-end trading system (replicating both OTC trading and exchange-trading), as well as
by responding to telephone calls, either based on a dedicated assignment or free format (in any role of
choice).
The Trading Simulations cover the trading in various products, such as metals and agricultural
products, as well as fossil fuels and electricity, plus futures and options based thereon. This form of
gaming teaches how, in a trade organisation, front, middle and back office activities relate to each
other. It also shows the significance of ICT, indicating mission critical business processes.
The Trading Simulations offer users an extension of Entrima’s online training services as they are
complementary to what can be learnt in Entrima’s online Training Courses (self-study). The Trading
Simulations can also be used as preparation for online examination.
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CHAPTER 2:
TARGET GROUPS – TRADERS & NON-TRADERS
The simulations are suitable for various target groups, including the following:
� In general:
o Any professional with a profession in or relating to the traded markets
� Any person who wants to know more about markets and trading
� In particular:
o Professionals with a business function
� Brokers
� System operators
� Balancing responsible persons
� Dispatchers & Shift traders
� Asset & portfolio traders
� Proprietary traders
� Originators
o Professionals with a control function
� Regulators
� Auditors
� Risk managers
� Trade compliance officers
� Trade surveillance experts at trading firms, venues & brokerage firms
o Professionals with a support function
� Back office staff (including Settlement officers, Confirmation officers)
� Finance professionals (including Controllers)
� ICT specialists (including Application managers, Data managers)
� HR experts
� Accountants
� Legal advisors
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CHAPTER 3:
STUDY ADVICE – RECOMMENDATIONS
Our study advice is based on a well-thought plan of education which relies on our extensive experience
as a provider of learning services. Nevertheless, the advice concerns a recommendation, certainly not a
must. Our study advice is as follows:
For non-traders (hence, any professional operating in or relating to the wholesale markets):
o Starters:
� You are advised to follow the first simulations (nr. 1-15), consecutively. This way,
you are guided to master basic concepts, processes, technicalities and related
terminology. This way, you also learn about trading technicalities and, thus,
how, you can transact, as well as how to read all reflected data and graphical
representations. Hereafter, you should be ready to follow any other simulation.
o Advanced:
� You are advised to follow any simulation of preference, possibly concerning a
specific commodity, and eventually regarding a particular activity or strategy.
This way, you can extend your knowledge base, or apply what you already have
learnt.
For traders:
o Starters:
� New recruits can use the simulations to kick-start their career. You are advised
to follow the first simulations (nr. 1-15), consecutively. This way, you are guided
to master basic concepts, processes, technicalities and related terminology. This
way, you also learn about trading technicalities and, thus, how, you can transact,
as well as how to read all reflected data and graphical representations.
Hereafter, you should be ready to follow any other simulation.
o Advanced:
� You can follow any simulation of preference, but especially those on ‘Options’
may be very informative. These simulations allow you to master this type of
derivative and its pricing, as well as the related risk parameters (Greeks). This
knowledge can be applied to trade the products, as well as to model flexibility
embedded in supply contracts and physical capacity.
As the Trading Simulations are provided at different levels, embedding different layers of complexity, a
certain minimum understanding of markets and trading is very desirable. In order to master the
concepts and processes plus related terminology, which are covered by the simulations, users are
recommended to follow Entrima’s Online (Self-study) Courses. The following online Online Courses are
of direct relevance for the simulations:
� Commodities
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� Commodity markets
� Commodity pricing
� Exchange-trading
� OTC trading
� Reasons to transact
� The central order book
� Order types
� Liquidity
� Clearing
� Margining
� Settlement
� Derivatives – Introduction
� Derivatives – Position management
� Options – Introduction
� Options – Hedging exposures
� Options – Greek variables
� Flexibility
� Spreads & spread trading
To get most out of the Trading Simulations, a user is recommended to have mastered the topics and
themes indicated by the online courses above. These concepts, activities and processes, plus related
terminology are of utmost relevance.
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CHAPTER 4:
DIFFERENT LEVELS – SUITABLE FOR ANY TARGET GROUP
Entrima’s Online Trading Simulations include numerous simulations, amongst others, to master generic
knowledge about markets and trading (for starters), as well as to master specifics and in-depth
expeetise (for advanced professionals).
Next the Online Trading Simulations can be run at different speed levels, so that they are suitable for
different target groups (starter, experienced, expert):
1. Slow market
2. Medium market
3. Fast market
The level indicates the density of data to be handled (per time unit) and, thus, the speed of information
processing.
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CHAPTER 5:
DIFFERENT PRODUCTS – SUITABLE FOR ANY TARGET GROUP
Entrima’s online Trading Simulations include numerous simulations, amongst others, concerning
different products, so that they are suitable for different target groups:
As a user, you choose the products you want to trade. A selection can be made amongst a large variety
of products, including the following:
� Products
o Derivatives
� Supply contracts
� Term contracts
• Forwards
• Futures
� Option contracts
o Underlying commodity, amongst others:
� Corn, wheat
� Soybeans, soybean meal, soybean oil
� Gold
� Copper, steel, aluminium
� Oil (crude & refinery products)
� Gas
� Coal
� Electricity
o FX
� USD
� GBP
� EUR
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CHAPTER 6:
LEARNING OBJECTIVES – WHAT IS IN IT FOR YOU?
The Online Trading Simulations allow professionals to master various aspects and elements relating to
wholesale markets and trading. One will master concepts, processes and terminology.
The aims of the Online Trading Simulations are manifold. It includes to familiarise with order
submission, order matching, price formation, market analysis and price forecasting, trading strategies,
trading technicalities, position management, clearing, settlement, margining, transaction cost, order
types, risk management, value at risk, the Greek variables, and many more topics and themes.
The bundle of trading simulations includes the following learning objectives:
� Master basic processes & concepts – Including related terminology & related aspects
o The trading environment
o The trade process & the contract lifecycle
o Straight through processing (of orders and deals)
o The decision-making process, psychology of markets and handling emotions
� Become an expert in trading
o Transacting or deal-making (buying & selling)
o Open a position & close a position
o Order types, plus order submission, processing and matching
o Hitting & lifting
o Market making & market taking (the role of initiator versus aggressor)
� Learn about position management
o Long/short (master short selling)
o Netting (multilateral)
� Conquer types of product
o Forwards, futures & options
o Spreads (cross-commodity spreads, time spreads, location spreads)
� Assure your expertise in pricing
o Price formation, order book and bid & ask
o Market liquidity
o Price volatility
� To familiarise with the look & feel of screen-based trading.
o What is shown on a screen? And which details matter most?
o Analyse what bid or ask stands for
� Master the working of an order book
o To analyse the bid-ask spread
o To observe market depth
� Master OTC trading and the usances in bilateral deal-making, including:
o Master agreement, credit risk management (limits) & the role of inter-dealer brokers
� Overcome exchange-trading
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o Clearing
o (Cross-)margin
� Learn about risk management
o Value at risk (VaR)
o Price correlation
o Greek variables (Delta, Gamma, Vega, Theta, Rho)
� Perform market analysis
o Processing data &, news as well as price forecasting
o Fundamental analysis, technical analysis, quantitative analysis, psychological analysis
� Price chart analysis
o Dynamic graphical representation of the price development
o Charting: Support & resistance lines, as well as confirmation & reverse patterns
� Forward curve analysis
o Static graphical representation of prices of contracts with a different time-to-maturity
o Contango & Backwardation
o Cost of carry
� Master FX trading
o Exchange one currency position for another currency position, as you like
o Monitor FX rate developments and the impact of it for deal-making
o Provide price quotations & learn about FX exchange rates
o Experience inter-bank transactions
� Become an expert in timing
o For any market participant, timing is essential; it will impact the financial performance.
� Learn how to optimise the financial performance
o Experience future cash flows are margins can be assured
� Interpret result – Understand the financial statement
o Take into account relevant aspects in order to qualify or to quantify the performance:
� Direct transaction costs (fees), as well as indirect transaction costs (slippage)
� Profit & loss (P/L), realised (after liquidation) & unrealised (open positions; M-to-M)
o The process of (cash) collateralisation
� Deposits (initial margin + variation margin)
o Cash management
� Finance liquidity & working capital
o Identify transaction cost
� Exchange fee & clearing fee
� Learn about trading psychology (mental management)
o Experience the gaming effect - Experience stress & adrenaline due to market dynamics
o Experience a profit, but also a loss; hence, an a-symmetric mental experience
o Experience the market going against your position
o Perform multi-tasking
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CHAPTER 7:
SUBSCRIPTION – GROUP & INDIVIDUAL
You can either register yourself or a group of people, so that you or the group are/is provided access to
the Online Trading Simulations and can act in the capacity of a market participant.
� Individual
An individuals can register himself/herself via our website (www.entrima.org). The service
concerns a so-called pay-as-you-go service. Payment can be performed per credit card, upon
which login details are provided instantly, so that you can run the Online Trading Simulations
immediately.
� Group
Sign up a group via [email protected]. Provide us with your details (name, organsiation, email
address, VAT number and PO number), so that we can provide you with an agreement which
has to be formalised after which we send you the invoice and provide your group access to the
simulation environment.
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TRADING SIMULATIONS
PART II:
TECHNICAL DETAILS USER INSTRUCTIONS
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CHAPTER 8:
BROWSER-BASED SOLUTION
The simulations concern an application that is based on the latest internet technology. It runs the best
and smoothest in modern webbrowser and is optimised for Google Chrome. If you are using another
browser and if you are facing any issue, please be so kind to inform us with the following notifications:
� On what kind of device are you using our application? Desktop, laptop, tablet or mobile phone.
� What operating system do you use? Windows, IOS, Android or other?
o If other, which?
� What browser did you use on your device mentioned above? Safari, Edge, Firefox, Internet
Explorer, Opera, other?
o If other, which?
� What went wrong?
� Do you have anything else to report?
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CHAPTER 9:
GENERAL INTRODUCTION – MARKET DYNAMICS
For any user of the Trading Simulations, the following aspects are relevant. It concerns an
understanding of the concept of ‘market working’ (hence, the functioning of markets), as well as price
formation:
� Only from hindsight one knows whether a decision to buy or sell (or to do nothing) has turned
out to be preferred. However, it is realistic that trading decisions have to be made facing
uncertainty about future scenarios.
� Pricing in markets is based on actions of market participants. The price in a traded market
should reflect the (fair and competitive) interplay between supply and demand. Where supply
and demand meet, an equilibrium appears. This equilibrium, however, is just the equilibrium
that (possibly only) applies to that specific moment in time. Sometime later (maybe even a split
second later) the equilibrium may be achieved at another price level. As a result, constant
attention is required. Rapid action may be desirable; although, sometimes, patience should
prevail. Actually, normally, it depends on whether one has to buy or sell (or whether one just
wants to do so), and whether the market is (expected) to move, or not, and, if so, whether it is
expected to go up or down.
� Whether the price in a market will move up or down, or move sideways, is not known upfront,
neither to what extent, nor when. Consequently, forecasting may be desirable; it is typically
based on thorough analysis. Analysis includes the processing of data and news, as well as the
interpretation of information. Amongst others, analysis can be performed by fundamental
analysis, technical analysis, statistical analysis and psychological analysis.
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CHAPTER 10:
PERSPECTIVES – YOUR ROLE & RESPONSIBILITIES
Upon application of the simulations you can act in different capacities. What role do you play? What are
your tasks or responsibilities? In reality, this should be formulated on beforehand, so that one will
perform better, while, with the simulations, you should choose what you prefer to learn more
effectively. In most cases, you are suggested a role and explained what is expected of you. If you’d
rather selelct a role yourself, then, amongst others, you could imagine the following perspective(s) for
yourself (all of these are covered by our suggestions/instructions anyhow):
� Initiator (‘Market maker’) or Aggressor (‘Market taker’)
A market participant either acts as initiator or market maker or as aggressor or market taker.
o Initiator (market maker)
A market maker is assigned by a trading venue (e.g. an exchange) to provide bids and
offers during the trading session more or less constantly. In other words, a market
maker initiates buying orders and selling orders simultaneously. Hence, a market maker
is a liquidity provider or ‘initiator’.
o Aggressor (market taker)
A market taker, on the contrary, is a market participant who does not initiate orders but,
instead, reacts or responds to the action of (a) so-called “initiator(s)”. Hence, market
takers act in the role of a so-called “aggressor”.
� Hedger (“Asset & portfolio trader”), Investor/Speculator (“Proprietary trader”) or Arbitrager
In the simulations, you either take the role of hedger, or as an investor or speculator, and in
some simulations, even as arbitrager.
o Investor / Speculator
As an investor / speculator, your aim is simply to make as much money as possible. This
takes place by creating an exposure. In such a capacity, obviously, after having opened a
position you need to close it to realise a financial result.
Proprietary trading concerns trading for one’s own account (i.e. the company account),
and at one’s own risk (being the company’s risk).
o Hedger
As a hedger, you are exposed to market risk. This exposure results from having entered
into a position, namely an asset. The asset may concern a financial asset or a physical
asset. In other words, if one has entered into a (supply or derivatives) contract (being a
financial asset), or if one has acquired (production, consumption, processing, storage or
transport) capacity (being a physical asset), then, one is exposed to market risk. This risk
has to be managed by entering into an off-setting position in (a) contract(s). This
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explains why transactions have to be performed.
Note:
Physical assets are characterised by input of a commodity and output of a commodity. The input
commodity may differ from the output commodity (for instance, in case of processing capacity, such as an
oil refinery or a soybean crusher, or combined production and consumption capacity, such as a gas-fired
power plant), or it may concern identical commodities, but input and output do not take place at the same
location, (transport capacity), or not at the same time (storage capacity).
By trading on the basis of having an asset and hedging the related exposures, one
actually performs “asset-backed trading”.
o Arbitrager
Arbitrage can be performed in case of a mispricing, by buying one product and selling
another simultaneously, thereby locking in the price differential. One should buy the
underpriced product and sell the overpriced product.
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CHAPTER 11:
TECHNICAL ASPECTS OF RELEVANCE – FUNCTIONALITY & TECHNICALITIES
The following technical aspects are of relevance before/when running a trading simulation:
� Audio
Turn on your sound to enable verbal notification, including alerts, comments or remarks. The
simulations include verbal instructions or information, as well as sounds to signal specific
trading actions or market activity.
� Timer
The simulation lasts for only a few minutes, simulating an entire trading day, or an even longer
period of time. A timer indicates how much time has passed or how much is left. The latter
simulates the remaining trading hours. During this period the market is open for deal-making
and/or order submission, cancellation or matching.
� Pause
Though unrealistic, as a real market cannot be paused, the Trading Simulation can be halted, by
the PAUSE function (top of page, next to the ‘Timer’). This allows a user to process data, news
and other information, before continuing the simulation.
� Trading screen
Once logged in, the simulation overview provides you with a list of simulations. After having
selected a simulation (for instance based on the study advice; see dedicated section), you are
invited to select how fast you’d like to process data (market speed: fast/medium/slow). Upon
your selection the simulation starts and you can enter the market.
� Market participants
You are not the only market participant; there are others as well. It is realistic to assume that
the others have already placed orders and, possibly, already have transacted when you enter
the market (when you start to run the simulation).
� Order book
In the (central) order book pending orders of all market participants (orders to buy and orders
to sell) are awaiting their execution. It concerns limit orders that cannot be matched with any
other order (yet).
� Position management
At the start of the simulation, you do not have any position. Hence, as soon as you transact (e.g.
a futures contract or an option contract) (either an open buy deal or an open sell transaction), a
position arises (either long or short). At any time during the simulation, a number indicates your
position (note: a position is per product, while a portfolio concerns all positions together). As
soon as you transact, a position changes. The related number changes on a real-time basis;
hence, your position alters instantly after each deal you do.
Note:
A positive number indicates a long position, a negative number indicates a short position.
� News flashes
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News is automatically published upon appearance. You have to interpret the news and judge
whether this will impact the market, and, if so, whether it will create upward or downward price
pressure, and to what extent.
� Graphical representations
Price information is represented numerical, as well as graphically. Graphically at least the
following two types of representations are shown:
o Chart
A price chart concerns a graphical reflection of the price development (of a single
product) over time. Time is reflected on the horizontal axis, while the price is shown
on the vertical axis.
Note: In some simulations the price development of two (or more) products are
shown in the same figure.
o Forward curve
The forward curve concerns a graphical representation of market prices of a series
of term contracts (all relating to the same commodity and identical delivery place)
offset to their (remaining) time-to-maturity.
Unlike a price chart, which develops dynamically, a forward curve is a snap shot of
the market situation at a certain moment in time and, thus, it concerns a static
picture. In the simulations, as much as in real-life, the forward curve is reflected
over-and-over again, leading to a dynamic impression. Actually, continuously, an
updated snap shot is shown.
� Transacting
Buy and sell as many times as desired or needed, and as much volume as you’d like, but (apart
from your role and objectives) please mind a possible position limit (a maximum of a certain
number of units per product, long or short).
o Bid & Ask
Note that the “bid” price (in combination with the related quantity) and the “ask” price
(in combination with the related quantity) reflect respectively a buying order of an
initiator and selling order of an initiator (by the way, the bid and ask could come from
just one initiator, but are typically from two different parties (or even more)).
The orders are limit orders, pending in the so-called “order book”, awaiting their
execution.
The simulations reflect reality (although in a simplified manner) in the sense that order
execution can take place in two ways, namely by “order submission”, as well as by
“hitting and lifting”. Order submission takes place via an order ticket (see below), while
hitting & lifting is explained first (see right hereafter).
o Hitting & Lifting
Enter into a transaction by “hitting the bid” ((left mouse) click on the ‘bid’ price) or “lifting
the offer” ((left mouse) click on the ‘ask’ price).
• Hitting
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When you are “hitting a bid” you are accepting to become the counterparty of
the pending purchase (buying) order of the initiator, implying that you -as
aggressor- sell to the initiator. In reality, this is either for the entire volume or,
when IT settings have been tailored, to a fixed (limited) quantity. In the
simulations, one unit will be transacted when hitting.
• Lifting
When you are “lifting an offer” it implies your acceptance of becoming the
counterparty of the pending sale (selling) order of the initiator, implying that you
-as aggressor- buy from the initiator. In reality, this is either for the entire
volume or, when IT settings have been tailored, to a fixed (limited) quantity. In
the simulations, one unit will be transacted when hitting.
o Order initiation (order ticket)
Navigating your cursor on a price (either a ‘bid’ or ‘ask’), followed by a right (not a left)
mouse click, initiates the pop-up of an order ticket. After the order ticket has been
launched, it can be altered (price level and/or quantity). Therefore, before submitting,
choose your settings (hence, select):
� Product
� The product is reflected on the order ticket. With “product” the contract is
meant. This could, for instance, concern a futures contract or an option
contract. In case a range of those products is listed, it could be that it
concerns contracts with almost identical specifications (such as identical
underlying value, the same delivery location and similar other details),
except for the expiration/maturity date or settlement moment/period. This
is why the product descriptions include the maturity date or delivery
moment/period.
In case of variety of options, it often concerns an identical underlying value,
but different strike prices, possibly in combination with different expiration
dates.
� Price
� The price of a limit order concerns a limit price. This implies it concerns the
maximum buying price (in case of a buy order), or minimum selling price (in
case of a selling order). A limit order, if executed upon submission, can be
executed at their limit price, or at a better level (meaning, at a lower (higher)
level in case of a purchase (sell) order). A pending limit order, if executed, is
executed at its limit price.
� Quantity
� Quantity concerns the volume of the order.
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� Order type
In the simulations there are two order types possible. As a user you cannot change
that.
� The order type which is automatically selected could concern a specific limit
order, namely an ‘immediate-or-cancel order’ (comparable to a ‘fill-or-kill’
order, although that is not allowed to match partially). This type of order -
once submitted- is either executed straight away, or, if matching is not
possible (as it does not meet the current market conditions (bid/offer)), then,
it is cancelled immediately (or simply technically impossible to submit at all).
� The order type which is automatically selected could concern a so-called
(generic) ‘(generic) limit order’. Such an order can be submitted at any time.
If it cannot be executed immediately, it will appear in the order book,
awaiting its execution. You can find (and possibly cancel) your pending
order(s) in the window “My orders”.
In reality (not included in the simulations(yet)), on order tickets, the following is also often included:
� Trading account
� Here the name of the trader is reflected so that transactions are added to
the “account” (or “book”) of the relevant trader. This way, the internal
account setup or so-called “book structure” is respected. It allows accounting
to take place efficient and effectively. This way, the performance of
individuals can also be measured.
� Broker
� Traders are only allowed to submit orders to an exchange trading platform if
their company has a membership. Alternatively, they can trade on the
exchange via the membership of a brokerage firms (assuming this broker
has a membership). Routing an order via a broker, however, requires the
trading firm to have a brokerage agreement in place with this brokerage
firm.
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CHAPTER 12:
LIMIT STRUCTURES – YOUR MANDATE
As a trader, you may face market regulations which you have to comply with. In addition, you have to
respect the rules of the trading venues on which you act (e.g. exchange rulebooks). Furthermore,
internally, the head of trading, the risk management department of the compliance function have
installed regimes that must be taken into account. All-in-all, laws, rules, procedures, policies or codes
set a framework in which one has to act. For the trading simulations the following applies:
� Cash limit
The available amount of working capital is limited, also in real-life. Also with the simulations,
you cannot allocate or spend more than your available working capital.
� Position limit
You are not allowed to run a position (per product / contract) exceeding a certain amount of
units (either ‘long’ or ‘short’). This is automatically monitored and managed, so, trying to exceed
it is of no use, as your actions will be blocked in an automated manner.
� Risk limit
In real-life, a trader is typically not allowed to run a position whereby the value at risk (market
risk) exceeds a certain level. With the trading simulations, you are expected (to a certain extent)
to monitor or manage this yourself. Although, effectively, in a trading simulation, you may be
limited by your working capital. As open positions on exchanges require a member to deposit
margin, which is funded by your working capital, you cannot exceed a certain risk level.
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CHAPTER 13:
REPORTING – MARKET ANALYSIS & FEEDBACK ON YOUR PERFORMANCE
In the Online Trading Simulations, reporting takes place during three sequential stages, namely 1. pre-
trade, 2. during the simulation and 3. post-trade.
Pre-trade reporting
Before the simulation starts, or at the start, you are informed about various financials that you face as a
market participant. After all, any trader is provided with a task and a mandate, as well as working
capital (money). In other words, one has to know one’s objectives, rules and how much money is
available. Hence, one needs to know within what kind of framework one has to operate to achieve
certain goals, meanwhile respecting the limits set by the organisation.
� Working capital
You are provided with working capital. In any case, the working capital is required to finance
your trading activities. Your task, as a speculator or as an arbitrager, is to make it grow, while,
as a hedger, you are supposed to allocate the capital optimally to fulfil your task.
Note:
Any number in the simulation reflecting a sum of money can be considered in a certain currency of taste (e.g. USD,
GBP, EUR, CHF or JPY). The simulations do not indicate this, to leave it open for the user’s choice of preference.
In addition, one is free to assume that all amounts of money represent or are reflecting fractions of multiples (e.g.
thousands or millions).
Reporting during the simulations
During a simulation the user is informed about various aspects. These elements have to be considered
by the user, analogous to a real trader acting in the real market. During the simulations, trading activity
is processed instantly, as much as market dynamics are processed on a real-time basis.
� Transaction log
All transactions that you conclude are reflected in the transaction log. If desirable, scroll
up/down. At the start, the log is empty. Both purchases and sales are reported. The product, the
volume and the price level are shown; next, the time stamp is made visable.
� Position reporting
Positions are updated with immediate effect on the basis of actual transactions. Note that long
positions are indicated by a positive number, while short positions are reflected by a negative
number.
� Working capital
Your working capital is allocated (automatically) to pay transaction cost (e.g. broker fees,
exchange fees, clearing fees) and to capitalise your exposures (e.g. initial margin, variation
margin), as well as to finance realised losses.
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� Brokerage fee
A brokerage fee has to be paid for every deal concluded via a broker (typically in the OTC
market). After all, the broker provides a service (e.g. it offers mediation services), which brings a
cost. In the trading simulations, the fee is per unit (and, thus, per contract).
� Exchange fee
An exchange fee has to be paid for every deal concluded at an exchange. After all, the exchange
provides a service (e.g. it offers a trading platform, it has to process orders and transactions),
which brings a cost. In the trading simulations, the fee is per unit (or per contract).
� Clearing fee
A clearing fee has to be paid for every deal that is cleared. After all, the clearing house (i.e. the
central counterparty, or CCP) has to process transactions and manage counterparty risk arising
from transactions, which brings a cost (amongst others, the clearing staff members have to be
paid salary). In the trading simulations, the fee is per unit (or per contract).
� Initial margin
An exposure arises upon the opening of a position. As the clearing organisation guarantees
settlement, but is exposed to counterparty risk, it requires members of the exchange to pledge
cash collateral as a deposit (margin).
In case of a default, the initial margin is to back potential losses, which may occur in the period
between the moment of default and the moment of unwinding the position (close-out). This is
why initial margin is typically is based on market volatility. Next, it also explains why initial
margin is deposited by both market participants (both buyer and seller).
Note:
In the simulations, in case of an outright position, the initial margin per contract is pre-set (like, in reality, the
clearing house typically fixes it and may reconsider periodically).
Note: re “Cross-margining NOT in place”:
In the simulations, in case of opposing positions (i.e. spreads) cross-margin is not in place. This implies that the
calculation of the margin does not take into account that opposing positions (one contract long, and another
contract short) lead to a lower market risk (risk offset). A lower exposure could lead to a discount for the
combination of the two (or more) margin requirements, instead of the sum of both futures positions. However, once
again, here such an offset is not incorporated in the calculation of the margin requirements. However, please note
that with the (value-at-)risk (VaR) calculation (see below), the offset is taken into account.
� Variation margin
If you have a position, as soon as the market (price) changes adversely, you are required to
deposit variation margin, equalling the unrealised loss on the position. This amount of money
(mark-to-market) is automatically transferred from your account to the margin account at the
clearing organisation.
Note:
In reality, margining may concern a daily process, with overnight adjustments; in the simulation, real-time margining
is applied.
� Unrealised result
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The “Unrealised result” indicates the actual (gross) unrealised result of the open position(s) (i.e.
mark-to-market result), not taking into account any transaction costs.
� Realised result
The “Realised result” indicates the (gross) financial result of the closed (liquidated) position(s),
ignoring transaction costs.
� Net. Liq. value
The “Net liquidation value” reflects the value that would be left if all open positions would be
liquidated at the current price levels in the market. In other words, it concerns the value of the
existing (or open) position(s) at the actual market prices. It can be calculated by considering the
working capital at the start, plus the realised and unrealised results, and taking into account all
incurred transaction costs (as these concern sunk costs), plus the initial margin and variation
margin deposits (as the deposits will be handed back in case of position liquidation).
� VaR
The value at risk (VaR) reflects your market (price) risk (and, thus, your exposure) in a quantified
manner. Once you open a position, a value at risk number arises. Obviously, upon position
liquidation, the VaR becomes zero (again). Analogously, partial liquidation will (only) lower the
VaR.
Note:
In reality, the VaR calculation includes price volatility number. After all, the lower the price volatility, the lower the
market risk. To mimic this in the the simulations, the VaR is based on a percentage of the contract value. As the
market price changes, this value moves accordingly. Hence, the value at risk (VaR) is indicated on a real-time basis.
Note, re “Correlation (risk offset): +0.95”:
The (value-at-)risk calculation in the simulation takes into account whether two futures positions are opposing each
other, or not, and, thus, whether a risk off-set applies. This does take place when a long futures position is combined
with a short futures position, as long as the price correlation between these two products is positive. The offset will
lead to a reduction of the exposure. This significance of this effect is dependent on the significance of the correlation
coefficient between the two prices of the products or contracts. In this case, a correlation coefficient of +0.95 is
applied (indicating a very strong price relationship).
Post-trade reporting
At the end of a trading simulation, you will be reported on your performance, financially and non-
financially. Download the PDF file that becomes available and save it in your own database in an
environment that you control yourself (note that Entrima does not save it).
� Transaction log
All transactions that you conclude are included in the transaction log. If desirable, scroll
up/down.
� Position
After market closure, you may have a flat position (meaning: no open position) or you are left
with a position (open position).
Open positions are valuated against closing/settlement prices. On this basis, mark-to-market
valuation takes place and margin requirements are effectuated. This is why with an open
position capital is still allocated by the relevant clearing organisation. (Nevertheless, it just
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concerns a temporarily allocation of capital, so the money is not gone.)
� Performance
As soon as you have finished your simulation, you are provided with a PDF file showing an
overiew with financials, including result (e.g. realised P/L, unrealised P/L), margin (e.g. initial,
variation), transaction fees and actual working capital. This way, you are provided the
opportunity to analyse your performance.
Mind that you may have left (an) open position(s); this will impact the numbers reflected. After
all, with an open position capital is still allocated by the relevant clearing organisation.
(Nevertheless, it just concerns a temporarily allocation of capital, so the money is not gone.)
� Quote request
In case the simulation includes quote requests, then, at the end of the simulation, you’ll be
reported on your performance. To assess your performance the following rules are considered:
� YOUR BID price must be lower than YOUR ASK price.
� YOUR BID > ACTUAL/MARKET BID minus the ACTUAL/MARKET Bid-Ask Spread (at the
moment of submission).
� YOUR ASK < ACTUAL/MARKET ASK plus the ACTUAL/MARKET Bid-Ask Spread (at the
moment of submission).
� Assessment
In case the simulation includes an assessment, then, at the end of the simulation, you’ll be
reported on your performance. For the assessment of your performance the following rules are
considered:
� In case of multiple choice questions only one answer will be considered correct.
� In case of open questions your answer is not allowed to deviate moe than 5% of the
actual number/price/value.
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TRADING SIMULATIONS
PART III:
OVERVIEW SIMULATIONS
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DEMO:
FREE TRIAL – TRY OUT & EXPERIENCE LOOK & FEEL
This concerns a demonstration, which provides just glimpse of our entire curriculum. This free trial is a
very generic and bare version of the professional sims.
Note that this just concerns a demonstration to provide you with a try out and experience the look and
feel. Most (other) simulations are much more comprehensive and more complex. They are suitable to
explain all relevant fundamentals and essentials of trading. This free trial is just to provide you with an
introduction to this world.
This simulation concerns exchange-trading of bio-ethanol futures contracts.
See our Simulation Guide on our website if you'd like to know which types of simulations are available,
how they work (functionality & technicalities) and what is expected of you.
Especially section II ("Technical details") explains very relevant aspects for a user, including:
� Pause button (top of screen)
� Order ticket (pop-up screen via mouse click)
� Hit the bid (click on the bid price)
� Lift the offer (click on the ask price)
� Change price chart (select by clicking on product)
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SIMULATION NO. 01:
MARKET ANALYSIS
Short description
� Process data, interpret news and analyse the price development.
Objective:
The aim of this simulation is learn how prices respond to news.
Capacity:
You act in the role of analyst; you are not supposed to act in the market. Moreover, you are unable to
transact.
Situation:
You can view the price development of a single term contract.
Tasks:
� See what happens to the market price; explain the development.
� Interpret news and see how the price responds.
� Watch the price also fluctuate when no news appears; this may be due to acitivity of (other)
market participants.
� Dynamics indicates price volatility; form your opinion about the price volatility level.
� Fundamental analysis is related to the incoming news items, while technical analysis can be
performed by considering the price chart.
Notes:
� In real-life, quantitative analysis & psychological analysis complete thorough market analysis.
� Only one product (contract) is shown.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity markets
� Commodity pricing
� Pricing – Price volatility
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SIMULATION NO. 02:
SCREEN-BASED TRADING
Short description
� Transact by hitting a bid or lifting an offer versus the submission of an order.
Role:
� You act in the capacity of a market participant.
� You act in the capacity of aggressor.
Situation:
� Exchange-trading of a listed futures contract.
� You have access to the central order book. Other market participants have placed orders to buy
and sell; you can transact on this basis. Hence, you act as ‘aggressor‘, whereas other market
participants act as ‘initiators’.
Tasks:
� Other market participants have placed orders to buy and sell; now, you can “hit their bid” or “lift
their offer”; this way, you’ll become the counterparty of their order initiation. By clicking on the
ask (price) you buy, while a click on the bid (price) makes you sell. After all, the bid and ask
(orders) have been initiated by other market participants than you. Now you aggress one (or
more) of these orders.
� Alternatively, you place an order (click on the bid price to launch an order ticket to sell, or click
on the ask price to launch an order ticket to buy; submit the order by the confirmation button).
Objectives:
� The aim of this simulation is understand the concept ‘hitting & lifting’, as well as the working of
order types.
� The goal is to understand that you buy when you lift an offer, while you’ll sell if you hit a bid.
Notes:
� Only one product is shown; hence; only one product can be transacted.
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Position limit (per product): 50 units (contracts; either long or short).
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Pricing – Central order book
� Trading – Order types
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SIMULATION NO. 03:
FINANCIAL PERFORMANCE – REALISED & UNREALISED P/L
Short description
� Analyse your financial performance, in particular your realised and/or unrealised profit or loss.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Task:
� Your task is to analyse your financial result: Realised and/or Unrealised Profit/Loss.
Objective:
The aim of this simulation is to:
� Analyse the Unrealised Result of an open position (“P/L-U”).
Therefore, open a position (long or short), initially of one unit only. Then, watch the market
price to develop and see what this does to your unrealised result.
� Analyse the Realised Result of a closed position (“P/L-R”).
Therefore, close the position that was initially opened. Upon closing the position, your
unrealised result should now be zero, while a realised result has appeared.
� Now start all over again, but this time you take a position of more than one unit (for instance
three units). Again, analyse your unrealised result; it changes dynamically on the basis of
market dynamics.
� At a certain point, close your position and watch your realised result (your unrealised result
should now be zero).
Situation:
� Only one product is shown; hence; only one product can be transacted.
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Position limit: 5 units (contracts).
� At the end of the simulation, any open position has remained open (as if it concerns an
overnight situation), while a closed position is left closed. This is reflected respectively by the
unrealised and realised results.
Note:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity pricing
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SIMULATION NO. 04:
SPECULATION – PROPRIETARY TRADING
Short description
� Make as much money as you can buy transacting term contracts.
Capacity:
� You act in the capacity of a so-called prop(rietary) trader, taking up the role of speculator.
� You act in the capacity of aggressor.
Task:
Your task is to make money, preferably as much as possible.
Objective:
The aim of this simulation is to end up with a positive financial performance (i.e. a profit). This would
grow your working capital.
Situation:
� You can transact two products; two term contract are being shown on screen (X and Y).
� In reality you would start with a certain working capital, which you have to grow by deal-making.
� Buy and sell as much as you’d like, but respect your position limit: 5 (long/short) units/contracts.
� Once you have an open position (long or short), you’ll be shown your realised profit or loss
(“P/L–R”) and your unrealised profit or loss (“P/L–U”).
� Assure you have not left any position at the end of the simulation. Hence, make sure you buy
and sell equal volume.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Compare your activity to specific elements in the price chart (such as maximum or maximum price
levels, as well as price trends).
Note:
� Swap price chart by clicking on product of relevance.
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
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SIMULATION NO. 05:
MARGIN REQUIREMENTS – INITIAL MARGIN & VARIATION MARGIN
Short description
� Analyse the pledging of cash collateral to manage counterparty (credit) risk; depositing initial
margin and variation margin.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Task:
� Your task is to analyse the margin deposits, both initial margin and variation margin.
Objective:
The aim of this simulation is to:
� Analyse the margin requirement(s) of an open position.
Therefore, open a position (long or short), initially of one unit only. Now, watch the initial
margin being deposited instantly, being taken from your working capital and transferred
digitally in an automated manner. Then, watch the market price to develop and see what this
does to your variation margin requirement.
� Analyse the margin requirement(s) of a closed position.
Therefore, close the position that was initially opened. Upon closing the position, your margin
requirements are zero (and, therefore, your margin deposits should now be zero), both initial
margin and variation margin.
� Now start all over again, but this time you take a position of more than one unit (for instance
four units). Again, analyse your margin requirements/deposits (or capital allocation); the
variation margin (if required) will change dynamically, on the basis of market dynamics.
� At a certain point, close your position and watch your margin requirements/deposits turn zero.
Situation:
� Only one product is shown; hence; only one product can be transacted.
� Position limit (per product): 5 units (contracts; either long or short).
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Initial margin = 25.00 (per contract).
� Variation margin = Unrealised loss (per position).
� At the end of the simulation, any position left open still requires a margin deposit; for sure
initial margin, and, in case of an unrealised loss, also variation margin.
Note:
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Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Clearing
� Margining
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SIMULATION NO. 06:
EXPOSURE ASSESSMENT – RISK QUANTIFICATION
Short description
� Analyse your exposure. Watch the quantification of the value at risk.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Task:
� Your task is to analyse your exposure (namely, the value at risk, or VaR).
� Note: it develops opposite of your P&L; mind the inverse relationship (P&L vs. exposure).
Objective:
The aim of this simulation is to:
� Analyse the market (price) risk quantification of an open position.
Therefore, open a position (long or short), initially of one unit only. Then, watch the market
price to develop and see what this does to your exposure (check your VaR).
� Analyse the market (price) risk quantification of a closed position.
Therefore, close the position that was initially opened. Upon closing the position, your exposure
(VaR) should now be zero.
� Now start all over again, but this time you take a position of more than one unit (for instance
five units). Again, analyse your exposure; the value at risk changes dynamically due to market
price fluctuations.
� At a certain point, close your position and watch your exposure; it should now be zero.
Situation:
� Only one product is shown; hence; only one product can be transacted.
� Position limit (per product): 10 units (contracts; either long or short).
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� At the end of the simulation, any position left open still brings an exposure.
Note:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Risk & opportunity
� Value at risk
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SIMULATION NO. 07:
VALUE AT RISK – VaR
Short description
� Monitor your market risk; analyse the value at risk (VaR) position.
� Note: risk develops opposite of your P&L; mind the inverse relationship (P&L vs. VaR).
Capacity:
You act in the role of both a market participant and a risk manager.
Objective:
The aim of this simulation is to learn how the value at risk number develops; explain yourself why it
does so. Analyse how the VaR number develops if you enlarge your position (double or triple it); clarify
the development. You could try to control your risk or to minimise your exposure by liquidating a
position.
Situation:
You are shown and can transact two term contracts.
Task:
Watch market risk to appear when you open a position in a term contract.
� Scenario A:
First, take a position in one contract for a volume of only one. Then, double this position to two
and thereafter to ten. Meanwhile check what happens to your VaR position (your exposure).
� Scenario B:
First take a position in one contract and check your VaR position. Then, take an opposing
position in the other contract for an equal volume (long product one versus short product two).
Then, check your VaR position once more. It should have gone down drastically, due to the
offset of risk. After all, the price correlation between the two products is positive and very
significant (+0.95).
Conclusion:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Verify whether your P/L has gone hand-in-hand with the risk you have been exposed to.
Financials:
The value at risk is not equal to the maximum loss, but is typically lower. It is calculated based on the
price volatility level (being the annualised standard deviation, expressed in a percentage). For the
calculation the actual market price is considered.
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Note:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Pricing – Price correlation
� Pricing – Price volatility
� Risk – Risk & opportunity
� Risk – Risk management
� Risk – Value at risk
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SIMULATION NO. 08:
FORWARD CURVE – GRAPHICAL REPRESENTATION
Short description:
� Analyse the forward curve over time; master its dynamics.
Situation:
Exchange-trading of listed futures. You can transact ten different contracts, all with the same
underlying value and other terms, except for one, namely each with a different time-to-maturity.
Capacity:
� You act in the role of a trader.
� You act in the capacity of aggressor.
Task:
Your task is to analyse this shape and level of the forward curve. News makes the prices of all contracts
change, although, some more than others. Watch the curve to move from contango to backwardation
and vice versa.
Objective:
The aim of this simulation is to learn about contango and backwardation, as well as the steepness of
the forward curve.
Conclusion:
At the end of the simulation, draw your conclusion which contract (out of the ten) has been the most
volatile and which contract has shown to lowest volatility.
Note:
� Position limit (per product): 10 units (contracts; either long or short).
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
� You could ignore this simulation if you are not familiar at all to forward curves or contango &
backwardation. It is a stand-alone simulation, so it does not impact being able to run other
simulations.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Forward curves
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SIMULATION NO. 09:
FUTURES – AT POSITION LEVEL
Short description:
� Position management: Set up futures positions at an exchange and monitor per contractual
position your fees, margin deposits and profit or loss.
Capacity:
� You act in the role of a trader.
� You act in the capacity of aggressor.
Objective:
The aim of this simulation is learn about transaction fees (exchange fee and clearing fee), the
temporarily allocation of cash collateral (initial margin and variation margin) and the financial
performance (realised and unrealised profit or loss).
Situation:
� Exchange-trading of five (5) listed futures contracts.
� You are allocated budget; your initial working capital is 800.
� Initial margin per contract is set at 10.00 per contract.
� Exchange fee and clearing fee per traded contract is set at 0.01.
Task:
Your task is to follow the money, when transacting.
� Look at the allocation of capital, as initial margin and variation margin.
� Analyse the development of your overall transaction fees.
� Track your realised and unrealised profit or loss (P/L).
Conclusions:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Check what differences can be detected when you compare the situation of having left no
position and having left a position.
Notes:
� Position limit (per product): 10 units (contracts; either long or short).
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
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Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� “Netting”, “Clearing” and “Margining“
� “Derivatives – Introduction”
� “Derivatives – Position management”
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SIMULATION NO. 10:
FUTURES – AT PORTFOLIO LEVEL
Short description:
� Portfolio management: Set up futures positions at an exchange and monitor for the overall
portfolio your fees, margin deposits and profit or loss.
Capacity:
� You act in the role of a trader.
� You act in the capacity of aggressor.
Objective:
The aim of this simulation is learn about transaction fees (exchange fee and clearing fee), the
temporarily allocation of cash collateral (initial margin and variation margin) and the financial
performance (realised and unrealised profit or loss) at portfolio level.
Situation:
� Exchange-trading of five (5) listed futures contracts.
� You are allocated budget; your initial working capital is 800.
� Initial margin per contract: 10.00.
� Exchange fee and clearing fee per traded contract: 0.01.
Task:
Your task is to follow the money, when transacting.
� Look at the allocation of capital, as initial margin and variation margin.
� Analyse the development of your overall transaction fees.
� Track your realised and unrealised profit or loss (P/L).
Conclusions:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Check what differences can be detected when you compare the situation of having left no
position and having left a position.
Notes:
� Position limit (per product): 10 units (contracts; either long or short).
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
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Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� “Netting”, “Clearing” and “Margining“
� “Derivatives – Introduction”
� “Derivatives – Position management”
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SIMULATION NO. 11:
OTC TRADING – SCREEN-BASED BROKERED DEALS
Short description
Bilateral deal-making involving brokerage services.
Capacity:
� You act in the role of a trader and trade on screen with the support of brokerage services.
� You act in the capacity of aggressor.
Task:
Identify on the trading screen various brokers showing their respective client orders. You can trade
aginst these orders, thereby becoming the counterparty to the resulting deal.
Situation:
� Screen-based OTC trading
� You will be shown and can transact two (2) standard forward contracts.
� You can transact against the orders shown on screen as all of these are from market
participants with whom your employer has entered into a master agreement and none of them
have exceeded the credit limit (yet).
Objective:
The aim of this simulation is to learn that brokers use advertisement screens or trading screens to
execute orders on behalf of their clientele.
Note:
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� OTC trading
� Brokerage services
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SIMULATION NO. 12:
OTC-TRADING – QUOTE REQUESTS
Short description
� Provide a quotation upon request of a client or another market participant.
Capacity:
You act in the role of a broker-dealer; alternatively, you act in the capacity of a market maker or
liquidity provider.
Task:
You can start the way you please. Transact whatever you like, the way you like. At a certain stage you
will be contacted by phone. The phone is picked up automatically. You will be asked to provide a price
quotation. Make sure you enter both a bid and an offer (i.e. the combination of a price at which you
want to buy and a price at which you want to sell, concerning a certain volume) and, then, submit. Note
that the quotation has to be at market (i.e. market conformity).
Situation:
� Bilateral deal-making
� Liquidity provision / market making
� One product
Objective:
The aim of this simulation is to familiarise with liquidity provision / market making and to apply what
you have learnt so far in the field of pricing.
Conclusion:
At the end of the simulation, your performance is analysed. See how you have done and try again, if
need be. To assess your performance the following rules are considered:
� YOUR BID price must be lower than YOUR ASK price.
� YOUR BID > MARKET BID minus the MARKET Bid-Ask Spread (at the moment of submission).
� YOUR ASK < MARKET ASK plus the MARKET Bid-Ask Spread (at the moment of submission).
Note:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Liquidity
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SIMULATION NO. 13:
LIQUIDITY – CENTRAL ORDER BOOK & MARKET DEPTH
Short description
Analyse market depth in the central order book to identify asset liquidity, indicating the level of market
activity.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Situation:
� You are shown (on screen) and can transact one (1) product.
� Position limit (per product): 50 units (contracts; either long or short).
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Tasks:
� Beyond the commercially most attractive orders, identify the next best bids and the next best
offers in the market. This way, you’ll see market depth. For this matter, you need to unfold the
product row (click on the “+” in front of the relevant product).
Objective:
The aim of this simulation is to get an understanding of the order book and to master the concept of
market depth.
Notes:
� The IT settings are such that one click will lead to aggress a volume of one (contract).
� When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-
market your order cannot be executed; hence; it cannot be submitted.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Central order book
� Order types
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SIMULATION NO. 14:
CENTRAL ORDER BOOK – ORDER INITIATION
Short description
Order initiation via generic limit order; order book analysis.
Capacity:
� You act in the role of a market participant.
� More specifically, you act in the capacity of initiator.
Task:
Place an order (to buy or to sell) in the order book which is not directly executed. Hence, it should
underperform the actual best bid/offer. Then, watch the order to appear in the order book as ‘pending’
(if it fits the first few lines of market depth; else, it is pending in the order book, but you may not be
able to see it (yet)) and identify this order at “My Orders”. You can await the order to be executed (no
guarantee, but only if the market moves in the right direction), or cancel it beforehand. In case of
execution, watch the deal to appear in the transaction log.
Next, you could (try to) place a limit order that outperforms the best bid/offer so far. This will decrease
the bid-ask spread. The order has a high chance to be executed (relatively fast).
Objective:
The aim of this simulation is to master placing an order in the order book, including those with an ‘off-
market’ price. Moreover, a stack of orders can be placed, either on one side of the order book, or on
both sides.
Note:
� One left mouse click on the price will lead to aggress a volume of one (unit/contract).
� When submitting an order (ticket): It concerns a generic ‘limit order’. If your price is off-market
your order cannot be executed immediately. As a result, it will appear in the order book.
Pending orders will appear in the window “My Orders”. Here you can cancel it, if you’d like.
� Your pending order may be accompanied by one or more orders of other market participants,
so that the total volume (Qty) on screen at your price is larger than just the volume (Qty) of your
order.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Central order book
� Order types
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SIMULATION NO. 15:
CALL OPTION
Short description
Setup a call option position in one contract and see what happens to its price when the underlying
futures contract price changes.
Capacity:
� You act in the role of an option trader.
� More specifically, you act in the capacity of aggressor.
Task:
Take a call option position (by transacting a call option). First buy one unit to setup a long call option
position of one contract. Then, analyse the value of the call option position, while simultaneoulsy
following the price development of the option’s underlying futures contract (both call option and
futures contract are reflected in two separate price charts). Explore their price relationship.
Objective:
The aim of this simulation is to learn about option valuation. You can master the impact of a price
change of the underlying asset (futures contract) for the option value. Make sure you compare the
option value to the value of the underlying asset.
Note:
� Time-to-maturity (option & underlying future) = 10 months.
� Start price underlying future = 40.00
� Strike price of the option = 40.00 (the option is initially at-the-money)
� On the trading screen, in the product list, the strike price of the option is stated between
brackets.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Introduction
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SIMULATION NO. 16:
PUT OPTION
Short description
Setup a put option position of one contract and see what happens to its price when the underlying
futures contract price changes.
Capacity:
� You act in the role of an option trader.
� More specifically, you act in the capacity of aggressor.
Task:
Take a put option position (by transacting a put option). First buy one unit to setup a long put option
position of one contract. Then, analyse the value of the put option position, while simultaneoulsy
following the price development of the option’s underlying futures contract (both put option and
futures contract are reflected in two separate price charts). Explore their price relationship.
Objective:
The aim of this simulation is to learn about option valuation. You can master the impact of a price
change of the underlying asset (futures contract) for the option value. Make sure you compare the
option value to the value of the underlying asset.
Note:
� Time-to-maturity (option & underlying future) = 10 months.
� Start price underlying future = 40.00
� Strike price of the option = 40.00 (the option is initially at-the-money)
� On the trading screen, in the product list, the strike price of the option is stated between
brackets.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Introduction
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SIMULATION NO. 17:
OPTION TRADING – SPECULATION
Short description
� Transact options and try to make money, as much as you can.
Capacity:
� You act in the role of an option trader. You can transact one option series (both a call option
and a put option), as well as the option’s underlying futures contract.
� More specifically, you act in the capacity of aggressor.
Task:
Your task is to set up the following option strategies and calculate the overall price of each of those
strategies: a long call spread, a long put spread, an at-the-money straddle, a strangle, an even-money
collar.
Objective:
The aim of this simulation is to master the dynamics of option markets, as well as to learn how the
price of options is impacted by the market dynamics of the underlying asset. Assure you maintain to
control your market risk; limit the value at risk (VaR) of your position.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Both exchange fee and clearing fee per traded contract is set at 0.01.
Note:
� Time-to-maturity (options & underlying future) = 10 months.
� Start price underlying future = 60.00
� Strike price of both options = 60.00 (the options are initially at-the-money)
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Introduction
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SIMULATION NO. 18:
OPTION ARBITRAGE & SYNTHETICS
Short description:
� Setup an arbitrage strategy; using synthetics.
Capacity:
� You act in the role of an option trader. You can transact two option series (a series consists of
both a call option and a put option), as well as the option’s underlying futures contract.
� More specifically, you act in the capacity of aggressor.
Task:
Your task is to set up the following strategies (involving options and, possibly, also an underlying
futures contract) and watch the overall value of each of these strategies to develop:
� Conversion: short call & long put (of same series) + long underlying future
� Reversal: long call & short put (of same series) + short underlying future
� Box: short call & long put (of same series) + long call & short put (of other series)
After having setup one of the strategies verify your P/L; it should not change.
Objective:
The aim of this simulation is manifold, namely, amongst others, to master and apply the put-call parity
and to understand what a strategy, like a conversion, a reversal or a box, does to the financial
performance (P/L).
Conclusion:
At the end of the simulation, analyse your performance. See in which cases you have locked in a profit
or loss, due to non-simultaneously transacting the individual legs.
Note:
� Time-to-maturity (options & underlying future) = 10 months.
� Start price underlying future = 80.00
� Strikes of option series: 70.00, 90.00.
� Implied volatility of the options = 35%.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Put-call parity & synthetics
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SIMULATION NO. 19:
OPTION STRATEGIES
Short description
� Set up various option strategies.
Capacity:
� You act in the role of an option trader. You can transact exchange-listed options (call & puts of 5
series) and their listed underlying futures contract.
� More specifically, you act in the capacity of aggressor.
Task:
Your task is to set up the following option strategies and calculate the overall price of each of those
strategies:
� Long call spread
� Long put spread
� (At-the-money) straddle
� Strangle
� Even-money collar
Your task is to choose which options (series) to use and which strikes have your preference. Try to
calculate the break-even points of each strategy.
Objective:
The aim of this simulation is to learn about the valuation of a strategy and the impact of a price change
of its underlying value. Try to identify (of each strategy) the break-even point(s), the ideal settlement
price at expiration and the related profit or loss. Next, master the impact of the choice regarding the
selected strike price(s). In addition, make sure you compare the strategy’s value to the value of the
underlying asset.
Conclusion:
At the end of the simulation, identify which strategy would have been ideal for the experienced price
development of the underlying value. Be precise; define call/put, strike level, long/short, and (in case of
an applied ratio) the number of options per individual leg.
Note:
� Time-to-maturity (options & underlying future) = 9 months.
� Start price underlying future = 100.00
� Strikes of option series: 80.00, 90.00, 100.00, 110.00, 120.00.
� Implied volatility of the options = 20%.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
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Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Introduction
� Options – Exercise, assignment & settlement
� Options – Hedging exposures
� Options – Put-call parity & synthetics
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SIMULATION NO. 20:
OPTIONS – THE GREEKS
Short description
� Analyse the Greek variables of option positions.
Capacity:
� You act in the role of an option trader. You can transact various exchange-listed options and
their underlying futures contract.
� More specifically, you act in the capacity of aggressor.
Task:
Your task is to set up the following option strategies and see what Greek values each of those positions
have and how these change if the price of the underlying futures contract changes: a long call option, a
long put option, a long call spread, a long put spread, an at-the-money straddle, a strangle, an even-
money collar.
Objective:
The aim of this simulation is to familiarise with the Greeks or to optimise such knowledge if already
available. The objective of this simulation is to understand the relationship between the Greeks and to
master the impact of a price change of the underlying value.
Greeks:
Analyse reported number in overview to monitor the Greeks of your portfolio:
� Delta (Δ)
� Gamma (Γ)
� Vega (ν)
� Theta (Θ)
� Rho (Ρ)
Conclusion:
At the end of the simulation, analyse your final position and the Greek variables that relate to it.
Conclude what the impact will be on the value of your portfolio if each of the following scenarios takes
place:
� The market price of the underlying future goes down with 2.00 (check Delta position).
� The implied volatility moves up 3% point (analyse Vega position).
� One day goes by and the market remains unchanged (verify Theta position).
� The interest rate moves up by 0.5% point (see Rho position).
Note:
� Time-to-maturity (options & underlying future) = 6 months.
� Start price underlying future = 250.00
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� Strikes of option series: 230.00, 240.00, 250.00, 260.00, 270.00.
� Implied volatility of the options = 30%.
� You can pause the simulation when it is running. This allows you to temporarily stop the
dynamics, to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Greek variables
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SIMULATION NO. 21:
OPTIONS – DELTA-HEDGING
Short description
Dynamically hedging an option position (strategy or portfolio) with the underlying futures contract.
Capacity:
� You act in the role of an option trader. You can transact exchange-listed options and their
underlying futures contract.
� More specifically, you act in the capacity of initiator.
Task:
Your task is to setup an option position, either long or short, either with a call only (or a multiple of it),
or with a put only (or a multiple of it). Then, check the Delta position. If it is long (a positive number),
then, sell an equivalent number of futures, but if the Delta position is short (a negative number), then,
buy an equivalent number of futures. Then, look at the following:
� First, check the P/L of your portfolio should not change significantly, when the underlying
futures price changes, as you have hedged according to the Delta (Delta-hedging).
� Secondly, verify whether the Delta position has exceeded (plus or minus) 1.00. if so.
o If larger than + 1.00, sell one future.
o If more negative than -1.00, buy one future.
This way, you dynamically apply Delta-hedging, in order to keep the value of the portfolio immune to a
price change, as much as possible.
Greeks:
Analyse reported number in overview to monitor the Greeks of your portfolio:
� Delta (Δ)
� Gamma (Γ)
� Vega (ν)
� Theta (Θ)
� Rho (Ρ)
Notes:
� Time-to-maturity (options & underlying future) = 3 months.
� Start price underlying future = 450.00
� Strike price of both options = 450.00 (the options are initially at-the-money)
� Implied volatility of the options = 20%.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Options – Hedging exposures
� Options – Put-call parity & synthetics
� Options – Greek variables
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SIMULATION NO. 22:
OIL – QUALITY SPREAD
Short description
� Trade the Brent–WTI quality spread.
Capacity:
� You act in the role of a market participant who applies spread trading, correlation trading
and/or statistical arbitrage.
� You act in the capacity of aggressor.
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the quality spread.
� Furthermore, your task is to trade the quality spread; setup the spread (a long versus short
strategy between different grades) and liquidate it when financially suitable.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
Situation:
Exchange-trading of listed crude oil futures contracts, namely:
� Brent (starting price: 80.00)
� WTI (starting price: 78.00)
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 23:
OIL – LOCATION SPREAD
Short description
� Trade the fuel oil location spread between Rotterdam & Singapore.
Capacity:
� You act in the role of an oil (products) trader (either as a prop trader or as an asset & portfolio
manager).
� You act in the capacity of aggressor.
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the location spread.
� Furthermore, your task is to trade the location spread; setup the spread (a long versus short
strategy between different locations).
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
� As an asset & portfolio trader, you have now hedged the exposure related to available transport
capacity (i.e. a vessel) and, therewith, secured future cash flows. Alternatively, as a proprietray
trader, you can liquidate your spread position when financially suitable and realise a profit.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
Situation:
Trading (either bilaterally/OTC, or on exchange) of fuel oil term contracts, with two different locations,
namely:
� Fuel oil - Rotterdam (starting price: 390.00)
� Fuel oil - Singapore (starting price: 370.00)
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 24:
OIL – TIME SPREAD
Short description
� Hedge (gasoline) storage capacity and lock in a future margin.
Capacity:
� You act in the role of an oil (products) trader.
� You act in the capacity of aggressor.
Task:
� Your task is to analyse the forward curve. Identify whether the market is in ‘contango’ or
‘backwardation’.
� In case of a steep contango, hedge (gasoline) storage capacity and lock in a nice margin (by
selling the time spread; meaning, you simultaneoulsy buy and sell a term contract, whereby the
contract you sell short has a longer time-to-maturity). Watch the value of this time spread to
develop. Has your timing been ideal? Could you have improved your performance?
Situation:
Trading of a series of gasoline contracts, with different times-to-maturity.
Objectives:
� The aim of this simulation is manifold, namely to understand the pricing of a time spread, to
understand the volatility of the time spread and to understand the opportunity and risk that is
related to those aspects.
� The objective of this simulation is also to master the concept of asset-backed trading; in this
case, hedging a physical asset, namely storage capacity. After all, by selling the time spread
(setup a long position in one term contract while simultaneously seting up a short position in a
further out term contract) you can secure the future margin.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Your working capital at the start is 600.00.
� Initial margin per contract is set at 20.00.
� Exchange fee and clearing fee per traded contract is set at 0.01.
� Position limit per contract: 5.
Notes:
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Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 67 - 106
SIMULATION NO. 25:
OIL – CRACK SPREAD
Short description
� Master the dynamics of various crack spreads and perform market risk management.
Situation:
� You possess an oil refinery.
� You can transact three futures contracts, underlying respectively gasoline, heating oil and
crude.
� The order book provides market depth (3 additional rows on top of best bid/ask).
Capacity:
� You act in the role of a (crude and products) trader at an oil company.
� You act in the capacity of aggressor.
Task:
Your task is to secure the future processing margin, by selling the so-called ‘crack spread’. This way, you
secure the future cash flows relating to your oil refinery (i.e. hedging). In other words, source
(purchase) the input commodity (hence, setup a long crude futures position) while you, simultaneously,
sell the output commodities (hence, you set up short refinery product futures positions). On the basis
of your realised prices, you should calculate the gross processing margin you have secured for your
employer. For this calculation you need to consider the relative volumes of the crude versus the
product slate (input-output ratio). As a matter of guidance, consider the following ratios which are
reflected real-time (on screen) on the basis of actual market prices (mid price):
� The 3:2:1 crack spread:
o Spread = (the value of 2 barrels of gasoline, plus the value of 1 barrel of heating oil)
minus the value of 3 barrels of crude.
� The 5:3:2 crack spread:
o Spread = (the value of 3 barrels of gasoline, plus the value of 2 barrels of heating oil)
minus the value of 5 barrels of crude.
� The 2:1:1 crack spread:
o Spread = (the value of 1 barrel of gasoline, plus the value of 1 barrel of heating oil)
minus the value of 2 barrels of crude.
Note: diesel is typically hedged with gasoline futures, while kerosene is often hedged with heating oil futures.
Objective:
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The aim of this simulation is manifold, namely to understand that there are different ratios for the
crack spread, to see that all of them are dynamic and to experience that transacting requires swift
action in all legs.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
� Crude oil is priced in US dollar per barrel, while gasoline and heating oil futures are quoted in
US dollar per gallon (note: 42 gallon = 1 barrel).
� Assume a crude future underlying a (thousand) barrel(s), while a gasoline and heating oil
futures each underlie forty-two (thousand) gallons.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 26:
OIL – ASSET-BACKED TRADING
Short description
� Dynamically hedging of oil refining capacity.
Situation:
� You possess an oil refinery.
� You can transact three futures contracts, underlying respectively gasoline, heating oil and
crude.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Capacity:
� You act in the role of a (crude and products) trader at an oil company.
� As an asset & portfolio trader you are responsible to hedge the exposure arising from the
refinery.
� You act in the capacity of aggressor.
Task:
Your task is to setup a hedge (sell the crack spread (futures spread) short) at an attractive crack spread
level. Thereafter, liquidate the hedge (buy back the crack spread) when the spread has decreased
significantly. This way, sequentially, a new hedge can be setup (sell short a crack spread (futures
spread)), preferably (again) at an attractive crack spread level. Thereafter the spread can be liquidated.
And this process can be repeated over and over.
Note: Ideally, the liquidation of the crack spread position takes place when the spread has gone down to zero, or even negative.
This, however, may not happen (soon). Alternatively, Delta-hedging is applied.
Objective:
The aim of this simulation is manifold, amongst others to learn about dynamic hedging and to master
timing.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done, at which price levels,
and when you have done this and whether it could have been optimised. This way, you learn and
optimise your competences.
Notes:
� Crude oil is priced in US dollar per barrel, while gasoline and heating oil futures are quoted in
US dollar per gallon (note: 42 gallon = 1 barrel).
� Assume a crude future underlying a (thousand) barrel(s), while a gasoline and heating oil
futures each underlie forty-two (thousand) gallons.
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� Working capital at the start = 500.00
� Initial margin = 10.00 (per contract).
� Exchange fee and clearing fee per traded contract is set at 0.01.
� Position limit per contract: 5.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Flexibility
� Options – Hedging exposures
� Options – Greek variables
� Options – Real options
� Options – Exotic options
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 27:
GAS – QUALITY SPREAD
Short description
� Trade the natural gas quality spread.
Capacity:
� You act in the role of a market participant who applies spread trading, correlation trading
and/or statistical arbitrage.
� You act in the capacity of aggressor.
Situation:
Exchange-trading of listed natural gas futures contracts, namely:
� High-calorific gas (starting price: 20.00)
� Low-calorific gas (starting price: 18.00)
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the quality spread.
� Furthermore, your task is to trade the quality spread; setup the spread (a long versus short
strategy between different grades) and liquidate it when financially suitable.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 28:
GAS – LOCATION SPREAD
Short description
� Trade the natural gas location spread.
Capacity:
� You act in the role of a gas trader (either as a prop trader or as an asset & portfolio manager).
� You act in the capacity of aggressor.
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the location spread.
� Furthermore, your task is to trade the location spread; setup the spread (a long versus short
strategy between different locations). If preferred, you can liquidate it when financially suitable.
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
� As an asset & portfolio trader, you have now hedged the exposure related to available transport
capacity (e.g. pipeline) and, therewith, secured future cash flows. Alternatively, as a proprietray
trader, you can liquidate your spread position when financially suitable and realise a profit.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
Situation:
Trading (either bilaterally/OTC, or on exchange) of natural gas term contracts, with two different
locations, namely:
� TTF – Title Transfer Facility (starting price: 20.00)
� NCG – Net Connect Germany (starting price: 21.00)
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 29:
GAS – TIME SPREAD
Short description
� Hedge gas storage capacity and lock in a nice margin.
Capacity:
� You act in the role of a gas trader.
� You act in the capacity of aggressor.
Tasks:
� Your task is to analyse the forward curve and identify the time spread for different periods.
� Identify whether the market is in ‘contango’ or ‘backwardation’.
� In case of a steep contango, hedge (gasoline) storage capacity and lock in a nice margin (by
selling the time spread; meaning, you simultaneoulsy buy and sell a term contract, whereby the
contract you sell short has a longer time-to-maturity). Watch the value of this time spread to
develop. Has your timing been ideal? Could you have improved your performance?
Situation:
� You possess (empty) storage capacity (in the United States), which is not allocated for any
purpose; which means, it is freely available to you.
� Exchange-trading of a series of (Henry Hub) gas contracts, with different times-to-maturity.
Objectives:
� The aim of this simulation is manifold, namely to understand the pricing of a time spread, to
understand the volatility of the time spread and to understand the opportunity and risk that is
related to those aspects.
� The objective of this simulation is also to master the concept of asset-backed trading; in this
case, hedging a physical asset, namely storage capacity. After all, by selling the time spread
(setup a long position in one term contract while simultaneously seting up a short position in a
further out term contract) you can secure the future margin.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Your working capital at the start is 100.00.
� Initial margin per contract is set at 1.00.
� Exchange fee and clearing fee per traded contract is set at 0.01.
� Position limit per contract: 10.
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Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 75 - 106
SIMULATION NO. 30:
GAS – SPOT MARKET & BEYOND
Short description
� Learn about gas-specific products, including spot market contracts with small granularity (e.g.
hourly contracts).
Capacity:
� You act in the role of a participant in the gas market.
� You act in the capacity of aggressor.
Task:
� Your task is to familiarise with specific gas products/contracts (and their granularity), including
those traded in the spot gas market.
Situation:
� Assume the time is 16:05 (five minutes passed four o’clock in the afternoon).
� Various gas contracts are traded, each with its own particular delivery period and with a specific
time-to-maturity.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Learning objective:
� The aim of this simulation is master the variety of gas contracts traded in the wholesale gas
market.
Note:
� Please note that prices in spot gas markets could get negative.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity markets
� Settlement
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SIMULATION NO. 31:
COAL – QUALITY SPREAD
Short description
� Trade the coal quality spread.
Capacity:
� You act in the role of a market participant who applies spread trading, correlation trading
and/or statistical arbitrage.
� You act in the capacity of aggressor.
Situation:
Trading (either bilaterally/OTC, or on exchange) of coal contracts, namely:
� Bituminous coal (starting price: 90.00)
� Sub-bituminous coal (starting price: 85.00)
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the quality spread.
� Furthermore, your task is to trade the quality spread; setup the spread (a long versus short
strategy between different grades) and liquidate it when financially suitable.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 32:
COAL – LOCATION SPREAD
Short description
� Trade the coal location spread.
Capacity:
� You act in the role of a coal trader (either as a prop trader or as an asset & portfolio manager).
� You act in the capacity of aggressor.
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the location spread.
� Furthermore, your task is to trade the location spread; setup the spread (a long versus short
strategy between different locations).
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
� As an asset & portfolio trader, you have now hedged the exposure related to available transport
capacity (i.e. a vessel) and, therewith, secured future cash flows. Alternatively, as a proprietray
trader, you can liquidate your spread position when financially suitable and realise a profit.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
Situation:
Trading of coal term contracts, with two different locations, namely:
� Richard’s Bay (South Africa) (starting price: 75.00)
� Newcastle (Australia) (starting price: 70.00)
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 33:
POWER – LOCATION SPREAD
Short description
� Trade the electricity location spread.
Capacity:
� You act in the role of a power trader (either as a prop trader or as an asset & portfolio
manager).
� You act in the capacity of aggressor.
Tasks:
� Analyse the price differential between the two products, its minimum and maximum and the
volatility of the location spread.
� Furthermore, your task is to trade the location spread; setup the spread (a long versus short
strategy between different locations). If preferred, you can liquidate it when financially suitable.
� Check your Value at Risk (VaR) upon opening a position in one leg (contract), either long or
short, and see the exposure (VaR) going down (risk mitigation) when you setup an opposing
position (long versus short) in the other leg (contract).
� As an asset & portfolio trader, you have now hedged the exposure related to available
transmission capacity (i.e. cable) and, therewith, secured future cash flows. Alternatively, as a
proprietray trader, you can liquidate your spread position when financially suitable and realise
a profit.
� Analyse your financial performance
o Watch the Unrealised Result of an open position (“P/L-U”).
o See the Realised Result of a closed position (“P/L-R”).
Situation:
Trading (either bilaterally/OTC, or on exchange) of electricity term contracts, with two different
locations, namely:
� Germany (starting price: 50.00)
� France (starting price: 49.00)
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 34:
POWER – SPARK SPREAD
Short description
Master the dynamics of various spark spreads (with different ratios) and perform market risk
management.
Objective:
The aim of this simulation is manifold, namely to understand what a spark spread concerns and that
different ratios apply to the spark spreads for different power plants (with different energy-efficiency
and carbon-intensity levels), as well as to see that any spark spreads is dynamic. In addition, it allows
you to experience that transacting a spark spread yourself requires swift action in all (3) legs.
Capacity:
� You act in the role of a power trader at a utility.
� You act in the capacity of aggressor.
Situation:
� Assume you possess a gas-fired power plant (in continental Europe), which is exposed to
market (price) risk. Assume, its energy-efficiency is 50% and its carbon-intensity is 0.50.
� Assume you act in the term markets.
� Imagine you access either the OTC market, or an exchange trading platform.
� You can transact three products, namely natural gas, carbon dioxide emission rights and
electricity.
Task:
Your task is to secure the future gross operational margin (on a forward basis), by selling the so-called
‘spark spread’. This way, you secure the future cash flows relating to your power plant (i.e. hedging). In
other words, source (purchase) the input commodities (hence, setup a long gas position and a long
carbon position) while you, simultaneously, sell the output commodity (hence, you set up short power
position). On the basis of your realised prices, you should calculate the gross operational margin you
have secured for your employer. For this calculation you need to consider the relative volumes of the
fuel and emission rights versus the electricity (input-output ratio). As a matter of guidance, consider the
following ratios which are reflected real-time (on screen) on the basis of actual market prices (mid
price):
� 50% energy-efficiency; 0.50 carbon-intensity:
o Spread = The value of 1 MWh of power output minus the marginal cost
o Whereby: Marginal cost = (gas price : 0.50) + (carbon price * 0.50)
� 55% energy-efficiency; 0.45 carbon-intensity:
o Spread = The value of 1 MWh of power output minus the marginal cost
o Whereby: Marginal cost = (gas price : 0.55) + (carbon price * 0.45)
� 60% energy-efficiency; 0.40 carbon-intensity:
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o Spread = The value of 1 MWh of power output minus the marginal cost
o Whereby: Marginal cost = (gas price : 0.60) + (carbon price * 0.40)
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
� Continental European power prices are quoted in euro per megawatt hour.
� Continental European gas futures are quoted in euro per megawatt hour.
� Emission rights are traded in euro (per tonne).
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 35:
POWER – ASSET-BACKED TRADING
Short description
� Dynamically hedging a gas-fired power plant.
Situation:
� You possess a gas-fired power plant in continental Europe.
� You can transact three futures contracts (at an exchange), underlying respectively electricity,
natural gas and emission rights.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Capacity:
� You act in the role of a power trader at a utility.
� As an asset & portfolio trader you are responsible to hedge the exposure arising from the
refinery.
� You act in the capacity of aggressor.
Task:
Your task is to setup a hedge (sell short the spark spread (futures spread)) at an attractive spark spread
level. Thereafter, when the spread has decreased significantly, liquidate the hedge (hence, buy back the
spark spread that you initially shold short). This way, a financial result is realised. Next, if the market
has moved again, in a favourable way, a new hedge can be setup (sell short a spark spread (futures
spread)), preferably (again) at an attractive spark spread level. Thereafter, when the spread has
decreased significantly, the spread position can be liquidated again. And this process can be repeated
over-and-over again.
Note: Ideally, the liquidation of the spark spread position takes place when the spread has gone down to zero, or even turned
negative. This, however, may not happen (soon). Alternatively, Delta-hedging is applied.
Objective:
The aim of this simulation is manifold, amongst others to learn about dynamic hedging and to master
timing.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done, at which price levels,
and when you have done this and whether it could have been optimised. This way, you learn and
optimise your competences.
Notes:
� Continental European power prices are quoted in euro per megawatt hour.
� Continental European gas futures are quoted in euro per megawatt hour.
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� Emission rights are traded in euro (per tonne).
� Working capital at the start = 500.00
� Initial margin (Power) = 5.00 (per contract).
� Initial margin (Gas) = 2.50 (per contract).
� Initial margin (Carbon) = 2.00 (per contract).
� Exchange fee and clearing fee per traded contract is set at 0.01.
� Position limit per contract: 5.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Flexibility
� Options – Hedging exposures
� Options – Greek variables
� Options – Real options
� Options – Exotic options
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 36:
POWER – SPOT MARKET & BEYOND
Short description
� Learn about electricity-specific products, including spot market contracts with small granularity
(e.g. hourly contracts).
Capacity:
� You act in the role of a participant in the electricity market.
� You act in the capacity of aggressor.
Task:
� Your task is to familiarise with specific electricity products/contracts (and their granularity),
including those traded in the spot power market.
Situation:
� Assume the time is 13:02 (two minuted passed one o’clock in the afternoon).
� Various electricity contracts are traded, each with its own particular delivery period and with a
specific time-to-maturity.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Learning objective:
� The aim of this simulation is master the variety of electricity contracts traded in the wholesale
power market.
Note:
� Please note that prices in spot power markets could get negative.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity markets
� Settlement
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SIMULATION NO. 37:
AGRI – SOFT COMMODITY FUTURES
Short description
Set up an agricultural commodity futures position at an exchange and monitor your financials.
Capacity:
� You act in the role of a market participant in de market for agricultural products.
� You act in the capacity of aggressor.
Situation:
� Screen-based exchange-trading of listed futures contracts.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
� Initial margin per contract is set at 25.00 per contract.
� Exchange fee and clearing fee per traded contract is set at 0.02.
Task:
Your task is to follow the money, when transacting.
� You are allocated budget; your initial working capital is 800.00.
� Look at the allocation of capital (initial and variation margin), once you open a position.
� Analyse the development of your overall transaction fees.
� Track your realised and unrealised profit or loss (P/L).
Objective:
The aim of this simulation is learn about exchange-trading of futures contracts on agricultural
commodities. It also allows you to master cash flow management, including the charging of transaction
fees (exchange fee and clearing fee), the temporarily allocation of cash collateral (initial margin and
variation margin) and the financial performance (realised and unrealised profit or loss).
Conclusions:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Check what differences can be detected when you compare the situation of having left no
position and having left a position.
Notes:
Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics,
which allows you to analyse while the market is frozen.
Study advice:
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Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Netting
� Clearing
� Margining
� Derivatives – Introduction
� Derivatives – Position management
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SIMULATION NO. 38:
AGRI – CORN FUTURES
Short description
Make as much money as you can by transacting.
Capacity:
� You act in the role of a proprietary trader (speculator).
� You act in the capacity of aggressor.
Task:
Your task is to make money, preferably as much as possible.
Situation:
� Exchange-trading of listed futures contracts (ten contracts with different times-to-maturity).
� You start with a certain working capital; make it grow by deal-making.
� Transact as much as you’d like, but respect your position limit of 10 (long or short) per contract.
� Assure you have not left any position at the end of the simulation. Hence, make sure you buy
and sell equal volume.
Objective:
The aim of this simulation is to end up with a working capital which is higher than you were provided at
the start.
Conclusion:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Compare your activity to specific elements in the price chart (such as maximum or maximum
price levels, as well as price trends).
Financials:
� Your working capital at the start = 100.00.
� Exchange fee = 0.01 per contract.
� Clearing fee = 0.01 per contract.
� Initial margin = 0.40 per contract.
Note:
� When, at the closing of the market (at the end of the simulation) you have closed your
position(s), your result is realised, but when you have left an overnight position (you have an
open position), you have an unrealised result. The unrealised result is processed in the financial
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statement on the basis of actual market prices. Hence, the “net liquidation value” indicates your
working capital if you would liquidate your position(s).
� You can pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
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SIMULATION NO. 39:
AGRI – WHEAT FUTURES
Short description
Make your capital grow by buying low and selling high.
Capacity:
� You act in the role of a commodity trader, aiming to buy low and sell high.
� You act in the capacity of aggressor.
Task:
Your task is to make money, preferably as much as possible.
Situation:
� Exchange-trading of listed futures contracts (ten contracts with different times-to-maturity).
� You start with a certain working capital; make it grow by deal-making.
� Transact as much as you’d like, but respect your position limit of 10 (long or short) per contract.
� Assure you have not left any position at the end of the simulation. Hence, make sure you buy
and sell equal volume.
Objective:
The aim of this simulation is to end up with a working capital which is higher than you were provided at
the start.
Conclusion:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Compare your activity to specific elements in the price chart (such as maximum or maximum
price levels, as well as price trends).
Financials:
� Initial working capital is 650.00.
� Exchange fee = 0.03 per contract; clearing = 0.03 per contract.
� Initial margin is 15.00 per contract.
Note:
� When, at the closing of the market (at the end of the simulation) you have closed your
position(s), your result is realised, but when you have left an overnight position (you have an
open position), you have an unrealised result. The unrealised result is processed in the financial
statement on the basis of actual market prices. Hence, the “net liquidation value” indicates your
working capital if you would liquidate your position(s).
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� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
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© ENTRIMA [email protected] 90 - 106
SIMULATION NO. 40:
AGRI – SOYBEAN CRUSH SPREAD
Short description
� Master the dynamics of the gross processing margin of soybean crusher capacity.
Objective:
The aim of this simulation is manifold, namely to master the hedging process of soybean crushing
capacity, as well as to understand that there are different standard conversion ratios for traded crush
spread futures contracts. This way, you’ll learn that the gross margin is dynamic and you’ll experience
that hedging requires swift action in all legs.
Capacity:
� You act in the role of a (beans and products) trader at a commodity trading firm.
� You act in the capacity of aggressor.
Situation:
� Assume you possess soybean crushing capacity.
� You can transact three futures contracts, underlying respectively soy meal, soy oil and beans.
Task:
Your task is to sell a crush spread to hedge your facility and to calculate the gross processing margin
you have realised for your employer. Do this as follows:
� Buy a futures contract concerning the input commodity (beans), and (simultaneously)
� Sell short the futures contracts for the output commodity
This implies the following:
� The long beans position implies an obligation to take delivery in time at the contract price.
� The short oil and meal positions imply obligations to make delivery in time at the contract price.
You can also analyse three different facilities on the side, facing three different efficiency ratios,
indicating the conversion ratios (standard conventions): � The 1 : 1 : 1 crush spread
� The 1 : 1.1 : 0.9 crush spread
� The 1 : 0.9 : 1.1 crush spread
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Notes:
� Soybean futures contracts are quoted in US dollar cents per bushel.
� Soybean oil futures contracts are quoted in US dollar cents per pound.
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� Soybean meal futures contracts are quoted in US dollars and cents per short tonne.
� The crush spread is quoted in US dollar per bushel of soybeans.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Spreads & spread trading
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SIMULATION NO. 41:
AGRI – ASSET-BACKED (SOYBEAN) TRADING
Short description
Dynamically hedging of a soybean crusher.
Capacity:
� You act in the role of a hedger; in particular, you act as asset & portfolio trader.
� You act in the capacity of aggressor.
Task:
Your task is to setup a hedge (sell short the crush spread (futures spread)) at an attractive crush spread
level. Thereafter, when the spread has decreased significantly, liquidate the hedge (hence, buy back the
crush spread that you initially shold short). This way, a financial result is realised. Next, if the market
has moved again, in a favourable way, a new hedge can be setup (sell short the crush spread (futures
spread)), preferably (again) at an attractive crush spread level. Thereafter, when the spread has
decreased significantly, the spread position can be liquidated again. And this process can be repeated
over-and-over again.
Note: Ideally, the liquidation of the crush spread position takes place when the spread has gone down to zero, or even turned
negative. This, however, may not happen (soon). Alternatively, Delta-hedging is applied.
Situation:
� Assume you possess soybean crushing capacity.
� You can transact three term contracts, underlying respectively soy meal, soy oil and beans.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
The aim of this simulation is manifold; amongst others, to learn about dynamic hedging and to master
timing.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done, at which price levels,
and when you have done this and whether it could have been optimised. This way, you learn and
optimise your competences.
Notes:
� Working capital at the start = 500.00
� Start price beans = 10.00 (per contract)
� Start price meal = 300.00
� Start price oil = 0.40
� Initial margin (beans) = 1.00 (per contract)
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� Initial margin (meal) = 30.00
� Initial margin (oil) = 0.04
� Exchange fee and clearing fee per traded contract is set at 0.01.
� Position limit per contract: 5.
� Soybean futures contracts are quoted in US dollar cents per bushel.
� Soybean oil futures contracts are quoted in US dollar cents per pound.
� Soybean meal futures contracts are quoted in US dollars and cents per short tonne.
� The crush spread is quoted in US dollar per bushel of soybeans.
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Flexibility
� Options – Hedging exposures
� Options – Greek variables
� Options – Real options
� Options – Exotic options
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SIMULATION NO. 42:
METALS – GOLD TRADING
Short description
Transact gold contracts in the futures market.
Capacity:
� You act in the role of a speculator.
� You act in the capacity of aggressor.
Task:
� Your task is to make money, preferably as much as possible.
� You start with a certain working capital; make it grow by deal-making.
Situation:
� Exchange-trading of listed futures contracts (ten contracts with different times-to-maturity).
� Transact as much as you’d like, but respect your position limit of 5 (long or short) per contract.
� Assure you have not left any position at the end of the simulation. Hence, make sure you buy
and sell equal volume.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
The aim of this simulation is to end up with a working capital which is higher than you were provided at
the start.
Conclusion:
� At the end of the simulation, analyse your performance. See what you have done and when you
have done this and whether it could have been optimised. This way, you learn and optimise
your competences.
� Compare your activity to specific elements in the price chart (such as maximum or maximum
price levels, as well as price trends).
Financials:
� Initial working capital is 900.00.
� Exchange fee = 0.05 per contract; clearing = 0.05 per contract.
� Initial margin is 100.00 per contract.
Note:
� When, at the closing of the market (at the end of the simulation) you have closed your
position(s), your result is realised, but when you have left an overnight position (you have an
open position), you have an unrealised result. The unrealised result is processed in the financial
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statement on the basis of actual market prices. Hence, the “net liquidation value” indicates your
working capital if you would liquidate your position(s).
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading
� Reasons to transact
� Risk – Risk & opportunity
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 96 - 106
SIMULATION NO. 43:
METALS – ALUMINIUM FUTURES
Short description
Transact aluminium futures in the market.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Tasks:
Your task could be manifold. Choose any of the following possibilities:
� Setup a consumer hedge; purchase a 3-months ahead aluminium futures contract.
� Setup a producer hedge; sell short a 6-months ahead aluminium futures contract.
� Perform speculation; buy and sell as much as you’d like to make your working capital grow.
� Analyse the price charts and make a comparison. Click on the contract name to select the
futures contract of preference.
� Analyse the forward curve.
� Setup a time spread position (e.g. buy a 2-month ahead contract while, simultaneously, selling a
8-months ahead contract).
Situation:
� Exchange-trading of (10) listed futures contracts, with different times-to-maturity.
� Check your working capital (and other financials) at the start, as well as during the simulation.
� Position limit per contract: 5 (long or short).
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
The aim of this simulation is to apply what you already know have learnt so far and to master more
knowledge. This includes screen-based trading, exchange trading, market dynamics, price volatility, the
working of the order book, price charts and forward curves.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Initial working capital is 750.00.
� Exchange fee (per contract) = 0.05; clearing fee (per contract) = 0.05.
� Initial margin is 50.00 per contract.
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Note:
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
© ENTRIMA [email protected] 98 - 106
SIMULATION NO. 44:
METALS – STEEL FUTURES
Short description
Transact steel futures in the market.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of aggressor.
Task:
Your task could be manifold. Choose any of the following possibilities:
� Setup a consumer hedge; purchase a 3-months ahead steel futures contract.
� Setup a producer hedge; sell short a 6-months ahead steel futures contract.
� Perform speculation; buy and sell as much as you’d like to make your working capital grow.
� Analyse the price charts and make a comparison. Click on the contract name to select the
futures contract of preference.
� Analyse the forward curve.
� Setup a time spread position (e.g. buy a 2-month ahead contract while, simultaneously, selling a
8-months ahead contract).
Situation:
� Exchange-trading of (10) listed futures contracts, with different times-to-maturity.
� Check your working capital (and other financials) at the start, as well as during the simulation.
� Position limit per contract: 5 (long or short).
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
The aim of this simulation is to apply what you already know have learnt so far and to master more
knowledge. This includes screen-based trading, exchange trading, market dynamics, price volatility, the
working of the order book, price charts and forward curves.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Initial working capital is 800.00.
� Exchange fee (per contract) = 0.02; clearing fee (per contract) = 0.02.
� Initial margin is 40.00 per contract.
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Note:
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
THE LEADER IN COMMODITY & ENERGY MARKET EDUCATION
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SIMULATION NO. 45:
METALS – COPPER FUTURES
Short description
Transact copper futures in the market.
Capacity:
� You act in the role of a market participant.
� You act in the capacity of initiator.
Task:
Your task could be manifold. Choose any of the following possibilities:
� Setup a consumer hedge; purchase a 3-months ahead copper futures contract.
� Setup a producer hedge; sell short a 6-months ahead copper futures contract.
� Perform speculation; buy and sell as much as you’d like to make your working capital grow.
� Analyse the price charts and make a comparison. Click on the contract name to select the
futures contract of preference.
� Analyse the forward curve.
� Setup a time spread position (e.g. buy a 2-month ahead contract while, simultaneously, selling a
8-months ahead contract).
Situation:
� Exchange-trading of (10) listed futures contracts, with different times-to-maturity.
� Check your working capital (and other financials) at the start, as well as during the simulation.
� Position limit per contract: 5 (long or short).
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
The aim of this simulation is to apply what you already know have learnt so far and to master more
knowledge. This includes screen-based trading, exchange trading, market dynamics, price volatility, the
working of the order book, price charts and forward curves.
Conclusion:
At the end of the simulation, analyse your performance. See what you have done and when you have
done this and whether it could have been optimised. This way, you learn and optimise your
competences.
Financials:
� Initial working capital is 5,000.00.
� Exchange fee per contract = 0.10; clearing fee per contract = 0.10.
� Initial margin is 200.00 per contract.
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Note:
� Feel free to pause the simulation when it is running. This allows you to temporarily stop the
dynamics, which allows you to analyse while the market is frozen.
Study advice:
Follow these online courses (see: guide) at Entrima, to apply relevant knowledge in this simulation:
� Commodity trading – Reasons to transact
� Risk – Risk & opportunity
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© ENTRIMA [email protected] 102 - 106
SIMULATION NO. 46:
FX MARKETS
Short description
Analyse currency exchange rates in the FX spot market.
Capacity:
� You act in the capacity of an FX trader at a bank.
Task:
� Your task (at choice) is to transact, by exchanging one sum of money in a certain currency for a
sum of money in another currency.
Situation:
� You will be contacted by your peers, at other banks to provide them a quote on request.
� Transact by exchanging one currency position for a position in another currency.
� The order book provides market depth (3 additional rows on top of best bid/ask). Click on the
plus-sign to unfold additional rows. This way, you will also see orders with the next best prices.
Objective:
� The aim of this simulation is to familiarise with the global FX markets.
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SIMULATION NO. 47:
FX TRADING – BROKER-DEALER AT BANK
Short description
Provide FX rate quotations as a response to requests for quote (RFQs).
Capacity:
You act in the role of a broker-dealer working at a bank, providing quotes for clients.
Task:
When the phone is ringing you pick it up (automatically) and, then, you answer the question (which
reflects a client request) by submitting your price quotation.
Objective:
The aim of this simulation is to master the concept of “request for quote”, as well as the concept of
“price quotations”.
Conclusion:
At the end of the simulation, analyse your performance, which is indicated in a final report. See what
you have done and whether it could have been optimised. This way, you learn and optimise your
competences.
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SIMULATION NO. 48:
ASSESSMENT – THE RIGHT SKILLS FOR A TRADER ?
Short description
Get assessed and challenge your competences as potential trader.
Capacity:
You act in the role of a trader.
Task:
You can start the way you please. Transact whatever you like, the way you like. Check your financials at
the start, as well as during the simulation. Likewise applies to the deals you enter into.
At a certain moment you will be assessed. You will be raised questions to see whether how much
feeling for numbers you have and to what extend you are aware of your current situation.
Situation:
� Exchange-trading of listed futures contracts.
� Buy and sell as much as you’d like, but respect your position limit of ten (10) per contract, either
long or short.
Objective:
The aim of this simulation is to assess your skills as a trader and, thus to see whether your
competences are fit for purpose.
Conclusion:
At the end of the simulation you will be shown the score reflecting some of your capabilities.
Traders’ competences can be modeled by FAUC (Framework for acting under uncertainty and
complexity). Traders have to be creative, resilient, adaptive, alert and entrepreneurial. In addition, they
have to have a feeling for numbers and be good in calculating. Besides, traders have to be decisive,
they should be daring to make decisions, under pressure, and, thus, in a timely manner.
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SIMULATION NO. 49:
QUOTE REQUESTS – ACT AS LIQUIDITY PROVIDER OR MARKET MAKER
Short description
Get assessed and challenge your competences as potential trader or dealer.
Capacity:
You act in the role of a trader/broker-dealer.
Task:
You can start the way you please. Transact whatever you like, the way you like. At a certain stage you
will be challenged. You will have to perform tasks to see whether and to what extend you can perform
under pressure and whether your have a feeling for numbers.
You’ll be called via telephone to provide a client or peer various requests for quote (RFQ). Upon receipt
of such a request, you will have to submit your quote. Any quotation has to consist of both a bid price
and ask price, whereby a maximum bid-ask spread applies.
Objective:
The aim of this simulation is to assess your skills as a trader and, thus to see whether your
competences are fit for purpose.
Conclusion:
At the end of the simulation you will be shown the score reflecting some of your capabilities. See how
you have done. To assess your performance the following rules are considered:
� YOUR BID price must be lower than YOUR ASK price.
� YOUR BID > MARKET BID minus the MARKET Bid-Ask Spread (at the moment of submission).
� YOUR ASK < MARKET ASK plus the MARKET Bid-Ask Spread (at the moment of submission).
Traders’ competences can be modeled by FAUC (Framework for acting under uncertainty and
complexity). Traders have to be creative, resilient, adaptive, alert and entrepreneurial. In addition, they
have to have a feeling for numbers and be good in calculating. Besides, traders have to be decisive,
they should be daring to make decisions, under pressure, and, thus, in a timely manner.
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CONTACT
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