Virtual Trading Project for Economics of Derivatives 646
Johns Hopkins University
 
Trading Simulation Project Description

Numerous brokerage firms and even a few options exchanges used to make free virtual trading platforms available, without funded accounts or other commitments, for paper options and futures traders. Since the start of the pandemic, such brokerage platforms are much harder to find in the U.S., though they are still available outside the U.S. (e.g., Plus500), but they might have something now for futures based in the U.S.). The brokerage-based platforms are now mostly being included as features of funded U.S. brokerage accounts (e.g., IB Trader Workstation). I don't follow these sites regularly, so you might be aware of a site that you prefer to those I list below. Feel free to let me know about dead or improper links below.

Two possible current U.S.-based free virtual trading exceptions might still be Webull (I do not know whether it still trades options) and eOption; they still appear to be free and without a prohibitive requirement for disclosure of your personal and financial information. But, do be careful as I cannot keep up with the details of all these firms. In addition, howthemarketworks.com, a StockTrak-based site, provides a free simulator (but with a lot of advertising, and targeted towards high school students), but it is not clear to me whether they still permit the trading of options (they are okay for trading stocks and ETFs). Students who might be interested in virtual trading through systems such as one of these for a course project should discuss this with the course instructor, who will express some reluctance because of potential financial risk and expense to the student (except for true virtual platforms such as Plus500), but could potentially be convinced that such a project might be appropriate for a student or a group of students, especially if said students already have a funded account. In addition, if a student were able to locate an appropriate U.S. virtual trading platform or simulation that the instructor perceives to be of low risk and expense, a course project could result.

One subscription-based virtual trading platform with a monthly fee that some students might use for this project is StockTrak, which does allow for options and futures trading. If you are really interested in this possibility, let the course instructor if you want to sign up and he can register the course, getting you a slightly lower student sign-up fee. Youtube has a video introduction for StockTrak. It's not nearly as good (or expensive) for a class such as this as either as FTS, Rotman or Trader-X, but it is easy to use and will cost less than $100 for the term. You can register as an individual , but you will have to arrange for payment.The site has easy, but very basic "courses" in options and futures trading (e.g., "Basic Options" and "Chapter 9: Introduction to Options"). Security prices are seriously delayed, perhaps by as much as 15 minutes, allowing for some gaming opportunities (everybody can turn $100,000 into $1,000,000,000 during the course of this term).

The objectives of these trading assignments, if a student or group of students were interested, are to provide students an opportunity to trade derivatives in a controlled and safe environment, facilitating an understanding of important trading and market concepts, including brokerage and market-making operations, risk management, valuation, liquidity, depth and bid-ask spreads, trading volume, etc. These are all concerns to traders in the banking and investment banking industries. For example, Plus500, an Israeli-based securities brokerage firm, provides for Internet-based demo trading for a number of contracts, including CFDs on a variety of instruments. Information on Plus500 is available from their website and from other sites, including a helpful Youtube video. There are many other Internet-based and software-based demo trading platforms available in Europe as well (e.g., IB Trader Workstation (TWS) Individual Demo, CMC Markets - links are constantly changing and being deleted, and many are available in Europe or the U.S., but not both), so students need not feel constrained to using the Plus500 facilities for this project, but do discuss with the course instructor any other trading site that you might consider.

Students electing to do the trading project should select one assignment from the list of two below. In all cases, students should carefully cite any work, paper, book, article, electronic communication or software, whether published or unpublished that was used as a reference for their project, though many students might find that either very few or even no references will be needed. Any material that was copied into their project must be appropriately footnoted and cited. Projects can be completed either on a group (up to 3 members) or independent basis See also this page for additional guidelines.

 The Assignment

The objective of this trading assignment is to provide students an opportunity for students to trade in a controlled environment, facilitating an understanding of important trading and market concepts, including brokerage and market making operations, liquidity, depth and bid-ask spreads, trading volume, etc. Plus500 provides for Internet-based trading that all students should have access to from Europe and most of Asia, but not the U.S. Webull or eOption might work in the U.S.

1. As soon as possible (but no later than the end of Week 3 for the term; students might wish to consider starting earlier to give them the chance to start again if they so choose), students should initiate an options-based portfolio using the standard availability for the virtual account (e.g., EUR 40,000 in demo money provided by the Plus500 trading platform). Students should continue to actively trade their portfolios for two months (60 days). Students might elect to trade a little longer if they so wish, but shorter trading periods are less desirable. All portfolios should be options and/or futures oriented, with equities, indices, interest rate products or commodities as underlying assets, and, of course, underlying assets can be included in said portfolios. Students electing to pursue this project should carefully maintain a detailed trading log and/or diary of their trading activity. This is crucial for evaluating and controlling performance, and revising trading trading strategies to improve performance. If you are unfamiliar with trading diaries and why they are used, there is a helpful video for this.

I wouldn't bother with CommuniTraders membership, and don't worry about technical analysis unless this is important to your strategies. The video-maker might be much more detailed in his diary than you need to be for each trade, but at a minimum, trade executions, dates, times and trade rationales are important for each trade. A spreadsheet-based diary might serve your needs well. Think about the creation of this diary before you start trading and on your first trading day. And, don't worry about binary options unless you want to.

For the final stage of the project, due at the end of Week 15, provide a detailing (your trading log and/or diary and/or appropriate screen shots or printings of screens authenticating trades) and an evaluation of your investment performance. Most of the analytical tools that you will need for this should have been covered in any introductory finance or investments course, though, of course, more reading and training wouldn't hurt. A recommended sample procedure for this assignment is as follows in the next several steps.
2. The investment objectives for your portfolio will be quite simple to begin with for your first three days of trading (extending to either the beginning of or the end of the third calendar day following the execution of your first trade, your choice). Simply make as much money as you can during these first three days (or partial days) which might total a little more than or less than 72 hours, as you choose. Really, what you do on the first day doesn't much matter as long as you have some money to work with on the second day. So, really, the objective on the first day is simply to learn how to use the trading platform and think about strategies.

Things should get more serious during your second period of trading, beginning on the fourth day. Starting on the fourth day (again, either the beginning of or the end of the fourth calendar day following the execution of your first trade, your choice) your objectives are prioritized as follows (number 1 is most important, 4 is least important):
  1. For the second period (excludes only the first three trading days), you should execute at least 200 trades. Plus, your total portfolio dollar trading volume during this entire second period must exceed 15 times the amount of the portfolio's ending value on its third trading day. Thus, you should execute at least 200 trades with a reasonably large monetary volume during the second 60-day trading period that extends to the end of Week 12.
  2. Earn at least 5% over the full approximately 56-day period trading period on the portfolio over its initial value starting on the second day.
  3. Do not lose more than 10% of the value of the portfolio from its high value over the period after the fourth trading day, including its initial value on the fourth day as you define it.
  4. Earn as much (or lose as little) on the portfolio as is possible from the start of the fourth day as you define it (beginning or end). Notice that this objective conflicts somewhat with the previous objective, but the prior objective is more important.
3.
 The first step for this project is to obtain trading credentials from your trading platform such as the Plus500 site. You will need a working email address to which credentials will be sent to confirm your registration, and you will set up a User-ID and Password. You will start the process to get these credentials by using the "Start Trading" or "Demo Model" links (There are similar links on the Italian and other language sites), which will take you to the Login page. Follow the instructions, including those that are required for confirmation, which will require your email address. Be certain that you use the demo trading pages or virtual trading pages; do not trade actual cash. Setting up a Demo trading account on Plus500 should be easy. I strongly suggest that you do not fund an actual trading account, provide any government-provided IDs including your social security number, that you do not provide banking or other private information, and that you be at least hesitant to provide your mailing address or phone number. If you have a "junk mail" email account, consider using this for virtual trading accounts.
4.
 Assume that I am the manager or board to whom you report. Prepare for me a detailed report (we will call it a management report) of your strategies, valuations and results, and compare the results to the objectives that were set forth for you. Evaluate your strategies, including how they changed over time to attain your objectives. Provide an honest assessment of your results, detailing what you did well and what you did not do well. Discuss in your report the strategies and their implementation that you would use should you be hired to manage a portfolio in a subsequent period, and how these strategies differ from those that you used in the completed period.
5.
 Your project deliverables due at the end of Week 15 are:
  • Appropriate virtual account (e.g., Plus500) printouts or screenshots (in pdf, xps, xlsx, jpeg or other common electronic format readable on a Windows-based computer) of brokerage-based documents verifying all of your trades in the second period. It is recommended that students practice creating such documents during their first three days of trading. These files might be considered to be an appendix to your management report.
  • Trading logs and/or diary in electronic form, most likely xlsx, pdf, docx or other suitable format to be read on a Windows-based machine. Again, these files might be considered to be an appendix to your management report.
  • The management report itself. There are many on line sites that can be helpful for preparing management reports for financial institutions and trading departments and entities. Your management report should be of professional quality.
There are no page or data limits; exercise your professional judgment.



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updated 08/19/2024.