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



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



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



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.



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)”.



TRADING SIMULATIONS

PART I:

GENERAL INFORMATION SUITABLE FOR ANYONE



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.



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



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



� 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.



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.



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



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



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



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.



TRADING SIMULATIONS

PART II:

TECHNICAL DETAILS USER INSTRUCTIONS



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?



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.



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



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.



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



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



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.



� 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.



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.



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.



� 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



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



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.



TRADING SIMULATIONS

PART III:

OVERVIEW SIMULATIONS



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)



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:



� Pricing – Price volatility



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).



Study advice:


� Pricing – Central order book

� Trading – Order types



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.


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:





� 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:





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.


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.






Study advice:


� Commodity trading – Reasons to transact

� Risk – Risk & opportunity



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:



Task:

� Your task is to analyse the margin deposits, both initial margin and variation margin.

Objective:


� 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.


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:






� 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:





Study advice:


� Clearing

� Margining



SIMULATION NO. 06:

EXPOSURE ASSESSMENT – RISK QUANTIFICATION

Short description

� Analyse your exposure. Watch the quantification of the value at risk.

Capacity:



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:


� 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.


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:






� At the end of the simulation, any position left open still brings an exposure.

Note:



Study advice:


� Risk & opportunity

� Value at risk



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.



Note:



Study advice:


� Pricing – Price correlation

� Pricing – Price volatility


� Risk – Risk management

� Risk – Value at risk



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.


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:







� 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:


� Forward curves



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:



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:



your competences.

� Check what differences can be detected when you compare the situation of having left no

position and having left a position.

Notes:









Study advice:


� “Netting”, “Clearing” and “Margining“

� “Derivatives – Introduction”

� “Derivatives – Position management”



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:



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:


� Look at the allocation of capital, as initial margin and variation margin.



Conclusions:



your competences.



Notes:









Study advice:


� “Netting”, “Clearing” and “Margining“

� “Derivatives – Introduction”

� “Derivatives – Position management”



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.


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:






Study advice:


� OTC trading

� Brokerage services



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 > 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:



Study advice:


� Liquidity



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:



Situation:

� You are shown (on screen) and can transact one (1) product.


� 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:






Study advice:


� Central order book

� Order types



SIMULATION NO. 14:

CENTRAL ORDER BOOK – ORDER INITIATION

Short description

Order initiation via generic limit order; order book analysis.

Capacity:


� 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.



Study advice:


� Central order book

� Order types



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.



Study advice:





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.


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.


� 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.



Study advice:





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.


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:



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.


� Strike price of both options = 60.00 (the options are initially at-the-money)



Study advice:





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.


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:



� Strikes of option series: 70.00, 90.00.

� Implied volatility of the options = 35%.



Study advice:


� Options – Put-call parity & synthetics



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.


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:



� Strikes of option series: 80.00, 90.00, 100.00, 110.00, 120.00.






Study advice:



� Options – Exercise, assignment & settlement





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.


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:





� Strikes of option series: 230.00, 240.00, 250.00, 260.00, 270.00.


� 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:





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:



� Strike price of both options = 450.00 (the options are initially at-the-money)


Study advice:







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.


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:



competences.

Notes:



Study advice:





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).


Tasks:


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).




� 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.




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:



Study advice:





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.


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:



competences.

Financials:

� Your working capital at the start is 600.00.

� Initial margin per contract is set at 20.00.


� Position limit per contract: 5.

Notes:





Study advice:





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.


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.


o Spread = (the value of 3 barrels of gasoline, plus the value of 2 barrels of heating oil)



o Spread = (the value of 1 barrel of gasoline, plus the value of 1 barrel of heating oil)


Note: diesel is typically hedged with gasoline futures, while kerosene is often hedged with heating oil futures.

Objective:



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:



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.



Study advice:





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.



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.


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.



� Working capital at the start = 500.00

� Initial margin = 10.00 (per contract).





Study advice:


� Flexibility



� Options – Real options

� Options – Exotic options



SIMULATION NO. 27:

GAS – QUALITY SPREAD

Short description

� Trade the natural gas quality spread.

Capacity:




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:











Conclusion:



competences.

Notes:



Study advice:





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).


Tasks:




strategy between different locations). If preferred, you can liquidate it when financially suitable.





capacity (e.g. pipeline) and, therewith, secured future cash flows. Alternatively, as a proprietray





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:



Study advice:





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.


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:



competences.

Financials:

� Your working capital at the start is 100.00.

� Initial margin per contract is set at 1.00.





Notes:



Study advice:





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.


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.



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:



� Settlement



SIMULATION NO. 31:

COAL – QUALITY SPREAD

Short description

� Trade the coal quality spread.

Capacity:




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:











Conclusion:



competences.

Notes:



Study advice:





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).


Tasks:




strategy between different locations).





capacity (i.e. a vessel) and, therewith, secured future cash flows. Alternatively, as a proprietray





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:



Study advice:





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).


Tasks:




strategy between different locations). If preferred, you can liquidate it when financially suitable.




� 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.




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:



Study advice:





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.


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)









Conclusion:



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).



Study advice:





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.



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.


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:




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).


� Initial margin (Power) = 5.00 (per contract).

� Initial margin (Gas) = 2.50 (per contract).

� Initial margin (Carbon) = 2.00 (per contract).





Study advice:


� Flexibility







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.


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.



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:



� Settlement



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.


Situation:

� Screen-based exchange-trading of listed futures contracts.



� Initial margin per contract is set at 25.00 per contract.


Task:


� 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.



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:



your competences.



Notes:



Study advice:




� Netting

� Clearing

� Margining

� Derivatives – Introduction

� Derivatives – Position management



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).


Task:


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.



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:



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



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


Study advice:






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.


Task:


Situation:






Objective:


the start.

Conclusion:



your competences.



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:










Study advice:






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.


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:



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.



� 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.



Study advice:





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.


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.



Objective:

The aim of this simulation is manifold; amongst others, to learn about dynamic hedging and to master

timing.

Conclusion:




Notes:


� Start price beans = 10.00 (per contract)

� Start price meal = 300.00

� Start price oil = 0.40

� Initial margin (beans) = 1.00 (per contract)



� Initial margin (meal) = 30.00

� Initial margin (oil) = 0.04



� 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.



Study advice:


� Flexibility







SIMULATION NO. 42:

METALS – GOLD TRADING

Short description

Transact gold contracts in the futures market.

Capacity:

� You act in the role of a speculator.


Task:

� Your task is to make money, preferably as much as possible.


Situation:







Objective:


the start.

Conclusion:



your competences.



Financials:


� Exchange fee = 0.05 per contract; clearing = 0.05 per contract.


Note:










Study advice:


� Commodity trading

� Reasons to transact




SIMULATION NO. 43:

METALS – ALUMINIUM FUTURES

Short description

Transact aluminium futures in the market.

Capacity:



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).



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:



competences.

Financials:


� Exchange fee (per contract) = 0.05; clearing fee (per contract) = 0.05.




Note:



Study advice:






SIMULATION NO. 44:

METALS – STEEL FUTURES

Short description

Transact steel futures in the market.

Capacity:



Task:


� 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.







Situation:






Objective:




Conclusion:



competences.

Financials:


� Exchange fee (per contract) = 0.02; clearing fee (per contract) = 0.02.




Note:



Study advice:






SIMULATION NO. 45:

METALS – COPPER FUTURES

Short description

Transact copper futures in the market.

Capacity:


� You act in the capacity of initiator.

Task:


� 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.







Situation:






Objective:




Conclusion:



competences.

Financials:

� Initial working capital is 5,000.00.

� Exchange fee per contract = 0.10; clearing fee per contract = 0.10.




Note:



Study advice:






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.



Objective:

� The aim of this simulation is to familiarise with the global FX markets.



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.



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.



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 > 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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