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Why? pdf -. Frank J. Jones, Richard J. Teweles. Download PDF · Read online. Since it first exploded onto the markets in , THE FUTURES GAME has Over . To read the PDF file, you will want Adobe Reader program. If you do not have Adobe Reader already installed on your computer, you can download the installer. the futures game - verbundzentrale des gbv - the broker in the game chapter 12 download the futures game who wins who loses why pdf - the.
This experiment can be successfully adopted in undergraduate finance education. Students have difficulty because the futures market often parallels the spot price and at maturity the two prices must be equal. Until maturity, however, the two prices can deviate. If students could better understand the factors associated with futures markets, the students would know how and when to take short and long positions and would understand the causes of profits and losses more easily.
This classroom experiment can be run easily in one class period and helps finance and economic students understand the simple and more complex concepts in futures markets.
The directed discussion following the experiment links the results of the experiment to various finance theories. This pedagogy is similar to the methods for deeper learning suggested by Manzo and Manzo and Becker, Watts, and Becker The act of trading currency or other commodity futures gives students a hands-on approach to understanding the abstract idea of futures.
We provide a classroom experiment that can be used in undergraduate finance, undergraduate economics, and even introductory masters of business courses to help students better understand trading strategies and processes.
The experiment is suitable for class sizes from ten to forty and takes about an hour, depending on the number of rounds and treatments chosen. Instructors can choose the commodity that is most appropriate for their specific course currency, oil, agricultural, etc. This classroom experiment covers long and short positions as well as different strategies. We focus on the concepts of noise, spot markets versus futures markets, closing trades, and making the market, although more advanced classes can add hedging to teach the importance of basis risk.
Instructors are welcome to discuss how speculators are valuable to hedgers by providing liquidity. The various treatments of the experiment emphasize price expectations, position trading versus day trading, open interest, and settlement at maturity. Applications to the real world are easy to bring into discussions.
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In the experiment, students represent traders who can download, sell, or download and sell in the different rounds. University Dr.
University of South Alabama. The experiment consists of several rounds with new information occurring in each round. The contract or the download and sell position is determined by negotiations between individual participants. The ongoing trades are projected onto the board at the front of the room, along with the ongoing futures and spot price.
At the end of the experiment maturity of the contract , traders must close their accounts as the futures price converges to the spot price. Then, students can be rewarded for their profits. Teaching Points The trading game provides many teaching points which can be used directly after the game and throughout the remainder of the term as more advanced futures topics are discussed. Below, we provide five topics for teaching points. As the game begins, there is no expectation of which direction the futures contract may move, however, we do allow trading to occur.
Thus, in the beginning, the market is quite thin as students have no pre-conceived notion on the future direction and trading is likened to a pure gamble. Students then begin the trading process again. Students start to learn that upon expectations of upward downward price movements that a long short position is desired so they can later sell download at a higher lower price.
One of the difficulties students tend to have in the classroom is the concept that the majority of contracts are not held to maturity and that it is not necessary to close out your position with your original trading partner. Participants quickly learn that closing a position involves entering into an opposite trade than the original contract opening trade.
Some students in this round will seek out other traders to close a position and thereby profit, while some students hold their positions.
Open Interest During the experiment, students can be provided with the number of contracts outstanding, and thereby learn how opening and closing positions affects the open interest.
Thus, students get an idea of the liquidity risk of the contract and must consider how easy it will be to find a willing trader to close out their positions. Although our trading game does not involve marking to market, that concept can be incorporated into advancements of the game by calculation of the daily settlement. Position Traders versus Day Trading Day traders hold their position for less than a day, and are unwilling to allow adverse news to affect the value of their contracts overnight.
Position traders, on the other hand, tend to keep contracts open for much longer periods of time and attempt to profit from major movements in the futures contract price. One of the most unique aspects of the game is watching the individual students execute their own strategies.
One student may continually take long positions without closing out in hopes that the price will rise by the end of the game, others may continually take short positions.
These participants define the position trader. At the end of the game, it makes for interesting conversation to compare strategies and discuss how the strategy relates to traders in the real world.
Lack of Liquidity and Convergence of the Futures Price to the Spot Price at Maturity Futures markets depend on liquidity and frequent trading to provide efficient price discovery. Near the end of the game, the market typically thins out, and the ability to trade usually decreases as participants are forced to accept prices different than what they may have preferred.
This adverse price occurs either through finding one of the few students willing to trade or waiting for settlement at maturity. These events provide a great opportunity to discuss with students the importance of having willing traders and liquid markets, as well as the action of the law of one price which ensures the equality of the futures and spot price.
The teacher, a graduate student, or even a student participant may play the role. The hedger can try to download or sell a contract in an effort to lock in a price for either download or sale of the commodity. If the hedger closes out the position prior to maturity, this action can lead to the discussion after class of basis risk risk due to differences in the timing of the contract and timing of the spot download or sale of the asset.
If the hedger holds the position until maturity, and the spot sale or download were perfectly timed, a perfect hedge results, and the price is locked. It can be explained that the hedge may have been beneficial if the price moved as expected, or not if the futures price moved in the opposite direction. The appendix includes the student instructional handout for the experiment, and a list of possible related discussion questions. For a class with little prior knowledge of derivatives, such as experimental methodology, we suggest chapter twenty of Investments by Charles P.
Jones as additional reading pp We recommend Holt and for instructors wanting some background on experiments. Tables I and II provide our experimental results. Electronic copies of the materials for the experiment, including a record-keeping sheet for the instructor, can be obtained by contacting the authors.
Experiment Details Our experience suggests that the optimal number of traders is between fifteen and twenty. Trading is thin with less than fifteen students.
We did, however, run this experiment successfully with eleven traders. Beyond twenty students it is difficult to manage the recording of the results though an experienced instructor could handle more.
For larger groups we suggest pairing students.
This allows the experiment to be easily run with a class size of up to forty students. It is very important to go over the instructions with students. Students are provided with the instructions in the prior class though not all students actually read.
On the day of the experiment, in lieu of a trial run, we read the instructions aloud and go through the game example as provided in Appendix A. We also work through the three quick questions at the end of Appendix A. Students start as commodity traders with no positions and almost no information.
They only know the current spot price. A quick coin flip provides information on news and expectations. Heads means positive news and that the spot price is expected to go up. Tails suggests negative news and a likely decreasing spot price. These trades are recorded on an Excel spreadsheet that is projected to the front of the class. It is very important that the data are easily viewable. Then, a die roll determines if the earlier news the coin flip is correct. A roll of 1 changes the direction, and a roll of 2 through 6 confirms the direction.
Next, four dice are rolled to determine the change in the spot price. In addition to the trades being made public, we also show on a dry erase board the movement of the spot price and the last bid for the futures price. Table 1 shows an example for one of our sessions. Table 2 shows the trades. In the reported session we had sixteen student traders with a total of fifty-five trades.
In all our sessions there seemed to be enough liquidity in the market for people to make desired trades. The direction of the spot rate change is dependent on the coin toss and the value change is dependent on the roll of the dice. The futures rate change is dependent on the first trade of the exercise for the beginning of round 1, the value of the last trades for rounds 1, 2, 3, 4, and the spot price for round 5.
Listed are the rounds, action, trading activity, spot rate and futures rate. The spot and futures rate correspond to figure 1. There were a total of 16 student traders and a total of 55 trades. Panel B contains the trades and profits for each individual student.
For example, there are no costs to carry. But the main objective of this experiment is to introduce students to futures markets; we, therefore, abstract from other factors, such as marking to market and holding costs. Citations are based on reference standards. However, formatting rules can vary widely between applications and fields of interest or study.
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Your rating has been recorded. Write a review Rate this item: Preview this item Preview this item. The futures game: Who loses? New York: Subjects Commodity exchanges. Financial futures. View all subjects More like this Similar Items. Allow this favorite library to be seen by others Keep this favorite library private. Find a copy in the library Finding libraries that hold this item Details Additional Physical Format: Print version: Teweles, Richard Jack, Futures game.
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Schneider, Nicole Simpson, and Eric O. Kevin sells another contract to Julie who downloads at 0. Add a review and share your thoughts with other readers. Investing in Futures is a project which helps you imagine future worlds wild, impractical, idyllic, and utopian and what it would be like to live in them.
Finally, we will roll four six sided dice, and the sum of the dice will determine the amount of the price swing. New York: McGraw Hill. For students who are a little further along in their course and already have the basic understanding of futures contracts, we provide a few enhancements to increase the sophistication of the game such as introducing hedgers along with the speculators.
No more trading occurs and the futures settle last price is 0.
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