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Trading Simulations

Egan Associates have completed a substantial upgrading of their successful proprietary trading simulations, one on foreign exchange and one on fixed income derivative products.

Both simulations evolve random price movements as they run, the scale and frequency of which are determined by a chosen volatility rate. Both also need to be set up by the trainer with a “story-line” (of news items, client contact inputs, etc.) that is related to additional specific price movements. Both simulations incorporate position sheets and a profit and loss statement updated in real time: both also calculate risk-weighted returns for participants that reflect the size of positions taken, scaling back the returns for participants who have been “lucky” only by taking large positions that turned out well.

The new simulations are Windows-based: the old ones were DOS-based. Many of the other improvements are visual, with a cleaner layout on screen and a general appearance and “feel” that reflects the change in appearance of real traders’ screens over the last five years. We have also expanded the range of currencies that can be used in both simulations and generally built in more flexibility, so as to give us greater leeway to bring out the learning points we want to focus on for different audiences.

Taking as an example the fixed income derivatives simulation, this incorporates the following financial instruments:

·    a single bond (a range of currencies is available);
·    a set of futures contracts on the bond;
·    a range of put and call options on the bond, at a variety of strikes;
·    a range of put and call options on the futures contracts, at a variety of strikes.

The algorithms automatically adjust the pricing of all the above instruments in an internally consistent way as interest rates and volatilities change. Participants can trade (long and short) in any or all of the above instruments. An integrated position sheet reflects total exposure expressed in futures equivalents.

Trading is effected by moving the cursor to the chosen price (bid or offer) of the selected instrument: a box is then overlaid that allows quantities to be entered and a purchase or sale selected and confirmed. During this process, a further box is overlaid that displays the key analytic features of the selected instrument, for example, for options the principal greeks and the implied volatility are shown. This allows participants (if they are sufficiently alert) to aim for delta-neutrality or to adjust the overall gamma of their stance as desired.

The simulations can run for up to three hours, but our experience shows that one to two hours is optimal, before a thorough debriefing by the trainer in attendance.
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