Trading Simulation Project for Corporate and Investment Banking CIB
LUISS University
 
Trading Simulation Project Description

The objectives of these trading assignments are to provide students an opportunity to trade in a controlled and safe 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. 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 Italy as well (e.g., IB Trader Workstation (TWS) Individual Demo, CMC Markets), so students need not feel constrained to using the Plus500 facilities for this project, but do discuss with John Teall 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should carefully cite any work, paper, book, article, electronic communication or software, whether published or unpublished that was used as a reference for their project, though many students might find that either very few or even no references will be needed.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 First 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 Italy.

1. As soon as possible (but no later than Friday, 15 May; students might wish to consider starting earlier to give them the chance to start again if they so choose), students should initiate a portfolio using the EUR 40,000 in demo money provided by the Plus500 trading platform. Students should continue to actively trade their portfolios for two weeks (14 days). Students might elect to trade a little longer if they so wish, but shorter trading periods are less desireable. 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 unless you're really interested (I'm not sure how active they are), 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.

For the final stage of the project, due ?, 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 on your first day of trading (extending to either the beginning of or the end of the calendar day following the execution of your first trade, your choice). Simply make as much money as you can on this first day (or partial day) which might be more than or less than 24 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 on your second day of trading. Starting on the second day (again, either the beginning of or the end of the calendar day following the execution of your first trade, your choice) your objectives are prioritized as follows (number 1 is most important):
  1. For the second period (excludes only the first trading day), you should execute at least 50 trades. Plus, your portfolio dollar trading volume during this entire second period must exceed 5 times the amount of the portfolio's ending value on its second trading day. Thus, you should execute at least 50 trades with a reasonably large monetary volume during the second period.
  2. Earn at least 1% over the full approximately 2-week period trading period on the portfolio over its initial value starting on the second day.
  3. Do not lose more than 3% of the value of the portfolio from its high value over the period after the first trading day, including its initial value on the second day as you define it.
  4. Earn as much on the portfolio as is possible from the start of the second day as you define it (beginning or end). Notice that this objective conflicts with the previous objective, but the prior objective is more important.
3.
 The first step for this project is to obtain trading credentials from 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 language sites), which will take you to theLogin 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; do not trade actual cash. Setting up a Demo trading account on Plus500 should be easy.
4.
 Assume that I am the manager to whom you report. Prepare for me a detailed report (we will call it a management report) of your strategies 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 where you didn't. 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, andd how these strategies differ from those that you used in the completed period.
5.
 Your project deliverables due ? are:
  • Appropriate Plus500 printouts or screenshots (in pdf, xps, jpeg or other common electronic format readable on a Windows-based computer) of Plus500-based documents verifying all of your trades in the second period. It is recommended that students practice creating such documents on their first day 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 no page or data limits; exercise your professional judgement.

 The Second Assignment

The objective of this trading-based assignment is to encourage students to think about trading as an individual day trader. This project is somewhat more related to concepts presented in this course than the first simulation project, particularly its emphasis on preparing a report to raise money. The second part is related to program or algorithmic (algo) trading.

This project assignment has two parts. The first part concerns setting up a day-trading business and the second concerns designing an algorithmic trading program.

  1.  Prepare a written business plan for a day trader (for example, yourself) working from home with an initial availability of $100,000 in capital to trade and $10,000 in cash for business start-up expenses. The business plan should offer detailed information on trading strategies, brokerage services (including brokerage firm names), specifics on equipment and software used for trading, etc. Ongoing expenses for subscriptions, brokerage commissons, fees for technology use, etc. will be taken from trading capital. All costs and other expenditures, whether initial or ongoing should be carefully detailed. This business plan should be addressed to me based on the assumption (rather unfounded, I add, but make the assumption anyway) that I will consider your request for a loan, a silentpartner arrangement or other as you deem fit. You may need to be a bit creative with details.There are no page or data limits; exercise your professional judgement.
  2.  Assume that your trading firm has access to a programmer who will design an algorithmic trading platform for stocks based on your specifications. The programmer will work in VBA and with Excel spreadsheets. She is very intelligent, learns quickly, but currently understands virtually nothing about finance beyond what the typical person without business training would understand. Your job is to provide this programmer with the written information that she will require to design this algo trading program. The report that you provide should contain the following information, along with anything else that the programmer will require to complete her assignment:
  • The objectives and basic strategies of the algo program
  • What data the program will require and how the data will be input to the program. You may assume that the firm currently has a trading platform with access to real-time data regarding market quotes and executions. However, you would need to provide details concerning additional data feeds, if appropriate (e.g., news data, events data, insider trading statistics, etc.).
  • A disscussion as to how data input to the algo program will be converted into a quote or order.
  • A discussion concerning the design of appropriate trade filters to ensure the safety of the program (e.g., to prevent unwanted trades).
Your algo may be based on an alpha strategy to produce trading profits or exploit arbitrage opportunities. You may supplement your report with any spreadsheets as you see fit, but such spreadsheets are not required. You are not required to prepare a prototype VBA or spreadsheet-based algo program, but you may if you wish, assuming that you are appropriately comfortable with VBA and spreadsheets. Essentially, you should consider yourself the "brains" behind the design of this algo program, but you need to provide the programmer all the information that she requires to actually implement your design. There are no page or data limits; exercise your professional judgement. Both parts of this project should be submitted together to the course instructor by 15 June.

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updated 05/04/2020