Reference no: EM133139711

BAFI1026 Derivatives and Risk Management - RMIT University

Assessment Task - Report and Excel

In this assessment, students are required to use the Trading Simulator tool from CME Group to trade on future products to hedge risk and/or take advantage of speculation.In the #2 trading session, you will focus on Equity Index future products.

The goal of this individual assignment is to gain a better understanding of the future market and risk management process, by testing and refining your trading strategies.

Below are the steps you need to follow to accomplish the task:
• In weeks 3, you have enrolled in the trading session from your timetable system. Check the session you enrolled in from the following7slots and attend your selected trading session via Canvas in week 8.
• Attend your selected live dealing session in Week 8. Use the GME Group account created in Week 5.
• Your instructor will use 1.5-2 hours to go through the task, elaborate the basic specs of Energy future products, explain the trading rules and demonstrate how to trade. You can start trading after instructor's demonstration.
• Your trading aims to hedge your risk exposure to the stock market risk as well as generating short-term profit. For student whose student number end with odd number, assume you hold a S&P 500 index fundworth $1,000,000 on the trading session day. For student whose student number end with even number, assume you hold a Nasdaq 100 index fundworth $1,000,000 on the trading session day. You aim to use Equity index future products to hedge your price risk.
• You also have $100,000 USD cash on hand at the beginning of your trading. You must use at minimum 50% of your account balance to hedge your stock price risk. Meanwhile, you are allowed to have up to 50% of your account balance to speculating/arbitraging, and the speculation/arbitrage products are not limited to Equity Index futures (e.g., you can even use Crypto futures to earn short-term profit, but also mind the potential loss).
• Please reset your game from GME Group simulator before your Task 2. Then you can trade any timeafter your instructor's demonstration, till the end of Week 9, 23:59 Friday, 6thMay 2022. You can trade as many times as you want, as long as you can justify your trading philosophy. You can do some trials at the beginning of the trading period to get familiar with the platform. When you decide to officially start to implement your strategy, please do not reset the game before 23:59 Friday, 6th May 2022.
• You can take both long and short positions in the future contracts. Your orders might be rejected by the system because of margin shortage or market close. When your account balance drops to near zero, you are basically out of the game.
• It is strongly encouraged to use the template to record your trading and balance on a daily basis, or whenever you make a trade.It is not necessary to flatten (close out) all your open positions. It is also a good practice to keep a record on your daily account balance, profit and loss as well as open positions, to facilitate consolidating your report.
• Based on your trading history, profit/loss from your futures account, and the income/cost from your physical asset, you need to form a report to summarize your trading exercise.
Note: Since the contracts can't be bought in fraction, a tiny variation from the specified budget is acceptable. You can choose to hold some Cash if you believe the investment opportunity is not good enough, but also need to justify this decision in your report.

- CME Institute Trading Simulator
Trading Simulator replicates live futures markets by leveraging real market data. A constant stream of new prices informs your strategies for CME Group's top products across all 6 asset classes, including Bitcoin and Micro E-mini futures. The Access to the simulator is free, all you need is a CME Group Login account. Please create an account before trading.

- Marking Guide
Your report must include the following sections:

1. Trading objectives:
Give an overview of your trading objectives.

2. Summarize your hedging strategy
Provide a summary on how you use Equity Index future products to hedge your stock market price risk. The content should include but not limited to:
• How much percentage do you hedge your portfolio? And why?
• Which future product(s) you use to hedge your risk, outline their basic specs?
• What strategy you employed to hedge (e.g., delivery month, contract price, contract amount, long or short, etc)?
• What is the performance of your hedging by the end of Friday, 6th May 2022? And how the spot price change for your fund holding?

3. Summarize your speculation trading
Provide a summary on how you use future contracts to speculate/arbitrage during your trading period. The content should include but not limited to:
• Do you think the 50% limits allocated on speculation is too high? And why? Do you feel speculation is risky from your trading exercise?
• How the speculation performed and explain your profit/loss?
• How your speculation strategy differs from last time (Trading session 1)?
• How you feel when you experience losses from the speculation?

Attachment:- Derivatives and Risk Management.rar