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Why? pdf -. Frank J. Jones, Richard J. Teweles. Download PDF · Read online. Since it first exploded onto the markets in , THE FUTURES GAME has Over . To read the PDF file, you will want Adobe Reader program. If you do not have Adobe Reader already installed on your computer, you can download the installer. the futures game - verbundzentrale des gbv - the broker in the game chapter 12 download the futures game who wins who loses why pdf - the.
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These participants define the position trader. At the end of the game, it makes for interesting conversation to compare strategies and discuss how the strategy relates to traders in the real world. Lack of Liquidity and Convergence of the Futures Price to the Spot Price at Maturity Futures markets depend on liquidity and frequent trading to provide efficient price discovery.
Near the end of the game, the market typically thins out, and the ability to trade usually decreases as participants are forced to accept prices different than what they may have preferred. This adverse price occurs either through finding one of the few students willing to trade or waiting for settlement at maturity.
These events provide a great opportunity to discuss with students the importance of having willing traders and liquid markets, as well as the action of the law of one price which ensures the equality of the futures and spot price. The teacher, a graduate student, or even a student participant may play the role.
The hedger can try to download or sell a contract in an effort to lock in a price for either download or sale of the commodity. If the hedger closes out the position prior to maturity, this action can lead to the discussion after class of basis risk risk due to differences in the timing of the contract and timing of the spot download or sale of the asset.
If the hedger holds the position until maturity, and the spot sale or download were perfectly timed, a perfect hedge results, and the price is locked.
It can be explained that the hedge may have been beneficial if the price moved as expected, or not if the futures price moved in the opposite direction. The appendix includes the student instructional handout for the experiment, and a list of possible related discussion questions.
For a class with little prior knowledge of derivatives, such as experimental methodology, we suggest chapter twenty of Investments by Charles P. Jones as additional reading pp We recommend Holt and for instructors wanting some background on experiments.
Tables I and II provide our experimental results. Electronic copies of the materials for the experiment, including a record-keeping sheet for the instructor, can be obtained by contacting the authors. Experiment Details Our experience suggests that the optimal number of traders is between fifteen and twenty.
Trading is thin with less than fifteen students. We did, however, run this experiment successfully with eleven traders. Beyond twenty students it is difficult to manage the recording of the results though an experienced instructor could handle more. For larger groups we suggest pairing students.
This allows the experiment to be easily run with a class size of up to forty students. It is very important to go over the instructions with students. Students are provided with the instructions in the prior class though not all students actually read. On the day of the experiment, in lieu of a trial run, we read the instructions aloud and go through the game example as provided in Appendix A.
We also work through the three quick questions at the end of Appendix A.
Students start as commodity traders with no positions and almost no information. They only know the current spot price. A quick coin flip provides information on news and expectations. Heads means positive news and that the spot price is expected to go up.
Tails suggests negative news and a likely decreasing spot price. These trades are recorded on an Excel spreadsheet that is projected to the front of the class. It is very important that the data are easily viewable. Then, a die roll determines if the earlier news the coin flip is correct. A roll of 1 changes the direction, and a roll of 2 through 6 confirms the direction.
Next, four dice are rolled to determine the change in the spot price. In addition to the trades being made public, we also show on a dry erase board the movement of the spot price and the last bid for the futures price.
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Table 1 shows an example for one of our sessions. Table 2 shows the trades. In the reported session we had sixteen student traders with a total of fifty-five trades. In all our sessions there seemed to be enough liquidity in the market for people to make desired trades.
The direction of the spot rate change is dependent on the coin toss and the value change is dependent on the roll of the dice.
The futures rate change is dependent on the first trade of the exercise for the beginning of round 1, the value of the last trades for rounds 1, 2, 3, 4, and the spot price for round 5.
Listed are the rounds, action, trading activity, spot rate and futures rate.
The Futures Game: Who Wins, Who Loses, & Why: Who Wins, Who Loses, and Why
The spot and futures rate correspond to figure 1. There were a total of 16 student traders and a total of 55 trades. Panel B contains the trades and profits for each individual student. For example, there are no costs to carry. But the main objective of this experiment is to introduce students to futures markets; we, therefore, abstract from other factors, such as marking to market and holding costs.
Second, the spot price is completely exogenous to the game. Students do not even know theoretically why the spot price changes other than the directional coin flip.
However, these simplifications enable the experiment to be run in one class period and to be used later to facilitate discussion and teaching points. The Importance of Payoffs The way that the payoff is set can greatly impact the student strategies.
We use a simple method. Whoever earns second most gets four points, and whoever earns third most gets three points. There are four exams in the class so those points can help a marginal student, but are not going to raise a C- student to a B.
We do not penalize students with losses. Naturally, this grading process could encourage students to take big positions to try to win it all. This strategy would make sense since as there is no penalty for losses, but we find that students mix between taking large positions and attempting to make many small trades similar to day traders.
There are pay-off methods that do not imitate tournaments. Holt uses a different method in his experiments. In some classes, bragging rights alone would encourage students to actively participate. Alternatively, some students just enjoy learning so much that they want to trade.
However, we find the pay-off technique we use provides us with different strategies by students which makes for great discussion at the end. These questions include but are not limited to: how markets operate, why liquidity is important, and even the basic strategy of short and long positions.
To alleviate some of the initial confusion, we provide instructions for a one class period futures game which can be run by a single instructor and can include all students in the class either acting alone or in teams.
The game has many benefits for both teachers and students. Instructors may choose the underlying asset and contract based on the course - for example, currency for a multinational finance class, soybeans for an agricultural economics course, or even oil for an energy policy course.
The game can be lengthened or shortened based on the teaching needs, and the only requirements are a coin, some dice, and an Excel spreadsheet. By allowing students to trade on their own or in teams, students quickly begin to understand the basic concepts of futures trading.
Students learn the difference between long and short positions, how trades are opened and closed, and what happens if contracts are held until maturity. It helps students understand the difference between the spot price of an asset, and the settlement price of a futures contract, as well as the terms open interest, contango, and backwardation. Based on different actions taken by students, instructors can discuss the risks faced by different strategies such as day trading and position trading.
In addition, since trading typically thins during some part of the game, the concept of liquidity and its importance to the futures market can be an important topic of conversation at the end of the game. For students who are a little further along in their course and already have the basic understanding of futures contracts, we provide a few enhancements to increase the sophistication of the game such as introducing hedgers along with the speculators.
This addition allows the instructor to use the game to discuss such areas as basis risk and the success of the hedge which can lead to conversations about the advantages and disadvantages of hedging. References Becker, William E. Bergstrom, Theodore, and John H. Experiments with Economic Principles. New York: McGraw Hill. Emerson, Tish L. Ewing, Bradley T. Kruse, and Mark A. Haigh, Michael S. Hazlett, Denise. Hazlett, Denise, and Jeela Ganje. Holt, Charles A.
Webgames and Strategy: Recipes for Interactive Learning. New York: Addison-Wesley.The hedger can try to download or sell a contract in an effort to lock in a price for either download or sale of the commodity.
Find a copy in the library Finding libraries that hold this item These could be songs, rituals, souvenirs, representative food dishes. The project includes a deck of playing cards that can be used in world-building workshops by yourself or facilitated by us , and artworks that we produce using the cards.
Document, Internet resource Document Type: To conduct a trade, you must bring your trading sheets to the recorder so we may enter them into the spreadsheet. Internet Archive. Then, students can be rewarded for their profits. Subjects Commodity exchanges.