The Trading Simulation - Report Example

Trading Simulation 1. Introduction This paper deals with the trading relevant and regarding to the portfolio of a value of $2, 50,000. There exists a restriction regarding the markets. The trading in the markets Euro/US$, British/Pound/US$, Japanese Yen/US$ only should be examined and observed by the simulation of trading with the available notionally. 2. Trading on Euro The available $2, 50,000 were invested in future trading of Euro, Yen and Pounds. The $1, 00,000 were invested in Euro, $1, 00,000 were invested in Yen and $50,000 were invested on Pound. By 21st march the position is that the dollar declined against Euro and the drop began at 5am European time and continued till afternoon of 21st march. 1 Euro = 1.3201 dollars by 21st march. This resulted in a profit of $9,000, as the value of dollar on 5th march is 1 Euro = $1.23. In the course of two weeks of the investment, there is no loss regarding the investment in Euro. date trade currency contracts maturity price 5/3/2007 25,000 USD future 12/3/2007 1 6/3/2007 50,000 USD future 17-3-07 1 7/3/2007 25,000 USD future 18-3-07 1 100,000 1. The percentage rate of return over trading period is 9,000x100/1,00,000 = 9. 2. The trading was done for 15 days. Over the course of 15 days it was observed that there is a change of 9 percent. The average change per day is 9/15 = 0.6 3. The standard deviations of the change of percentages in the 15 days of the trade. 1st day =13 percent 2nd day= 12 percent 3rd day = 12 percent 4th day = 12 percent 5th day = 6 percent 6th day = 7 percent 7th day = 8 percent 8th day = 9 percent 9th day = 8 percent 10th day = 7 percent 11th day = 7 percent 12th day = 8 percent 13th day = 9 percent 14th day = 9 percent 15th day = 8 percent Sum of the percentages = 13+12+ 12+12+6+7+8+9+8+7+7+8+9+9+8 = 135 /15 = 9 The mean of the percentages of change = 9 The standard deviation = (9-13)­2+(9-12)2+ (9-12)2+(9-12)2+(9-6)2+(9-7)2+(9-8)2+(9-9)2+(9-8)2+(9-7)2+(9-7)2+(9-8)2+(9-9)2+(9-9)2+(9-8)2 = 16+9+9+9+9+4+1+0+1+4+4+1+0+0+1 = 68/15 = 4.53 In the course of 15 days using $ 1,00,000 invested on euros no future position has been closed. The cash is not invested in other money markets or investments as there is no chance observed for depreciating of Euro against dollar. All the fifteen days the futures were traded according to the present market price and almost all the times, the dollar depreciated over Euro. This situation did not compel the trader to invest the portfolio allotted to the euros to be invested in other money markets or investments. At the time of calculating the profit and standard deviation all the future positions were closed. The future positions of the contracts On 5th March, future contract for the buying euros at $1 for 1 euro. On 6th March future contract for buying euros at $1 for 1 euro on 7th of March On 7th March future contract for buying euros at $1 for 1 euro on 8th of March. On 8th March future contract for buying euros at $1 for 1 euro on 12th March On 9th March future contract for buying euros at $1 for 1 euro on 21st March On 10th March future contract for buying euros at $1 for 1 euro on 21st March On 11th of “ “ “ “ “ “ On 12th of ‘ ‘ ‘ ‘ On 13th of ‘ ‘ ‘ ‘ ‘ On 14th of ‘ ‘ ‘ On 15th of ‘ ‘ ‘ ‘ On 16th march ‘ ‘ ‘ On 17th of march ‘ ‘ ‘ On 18th of march ‘ ‘ ‘ On 19th of march ‘’ ‘ ‘ 3. Trading on Yen Out of the available $2,50,000 funds $1,00,000 were invested in future trading of Japanese Yen. By 21st march the position of dollar declined against Yen and it has hit two and a half month low against Yen. On 21st march afternoon, the $1 = 116. Yen The Japanese Yen increased by 12 percent over dollar from 5th march to 21st march. This resulted in accumulation $16 The percentage of profit is 16 In the course of two weeks of the investment no loss is observed in the investment on Yen. 1. The percentage of rate of return over trading period is 16x100/1,00,000 = 16 2. The trading was done for 15 days. Over the course of 15 days it was observed that there is a change of 16 percent. The average change per day is 16/15 = 1 (approximately) 3. The standard deviations of the change of the percentages in the 15 days of the trade will be calculated. Before that the changes in 15 days are listed. date trade currency contracts maturity price 5/3/2007 25,000 USD/yen future 12/3/2007 1 6/3/2007 50,000 USD/yen future 13-3-07 1 7/3/2007 25,000 USD/yen future 14-3-07 1 100,000 1st day =15 percent 2nd day= 14“ 3rd day = 13 percent 4th day = 14 percent 5 th day = 13percent 6th day = 14percent 7 th day = 12percent 8 th day = 16percent 9th day = 16percent 10th day = 16 percent 11th day = 18 percent 12th day = 19percent 13th day = 20percent 14th day = 20percent 15th day = 20percent Sum of the percentages = 15+14+13+14+13+14 +12+14+15+16+20+20+20+20+20 = 240 /15 = 16 The mean of the percentages of change = 16 The standard deviation = (16-15)­2+(16-14)2+ (16-13)2+(16-14)2+(16-13)2+(16-14)2+(16-12)2+(16-14)2+(16-15)2+(16-16)2+(16-20)2+(16-20)2+(16-20)2+(16-20)2+(16-20)2 = 1+ 4+9+4+9+4+16+4+1+0+16+16+16+16+16 = 132/15 = 8.8 The standard denotes that the fluctuations vary over a larger area. As the mean is 16 and the standard deviation is 8.8 the fluctuations and the deviations from the mean had been drastic. This denotes that there is a larger depreciation of dollar over the yen. The percentage and range of depreciation of dollar against Yen is more than that of Euro. In the course of 15 days using $ 1,00,000 invested on Yen no future position has been closed due to lack of dollars as it was a condition. The cash is not invested in other money markets or investments as there is no chance observed for depreciating of Euro against dollar. All the fifteen days the futures were traded according to the present market price and almost all the times, the dollar depreciated over Yen. This situation do not compels any trader to invest the portfolio allotted to the euros to be invested in other money markets or investments. At the time of calculating the profit and standard deviation all the future positions were closed. The future positions of the contracts On 5th march, future contract for the buying euros at $1 for 97.2 yen On 6 th march future contract for buying euros at $1 for 97.2 on 7th of march On 7th of march future contract for buying euros at $1 for 97.2 yen on 8 th of march. On 8th march future contract for buying euros at $1 for 97.2 yen on 12 th march On 9th march future contract for buying euros at $1 for 97.2 yen on 21 st march On 10th of march future contract for buying euros at $1 for 97.2 yen on 21 march On 11th of “ “ “ “ “ “ On 12th of ‘ ‘ ‘ ‘ On 13th of ‘ ‘ ‘ ‘ ‘ On 14th of ‘ ‘ ‘ On 15th of ‘ ‘ ‘ ‘ On 16th march ‘ ‘ ‘ On 17th of march ‘ ‘ ‘ On 18th of march ‘ ‘ ‘ On 19th of march ‘’ ‘ ‘ all future contracts are closed by buying Yen according to the price mentioned in the future contract. 4. Trading on Pound Out of the available $2,50,000 funds $ 50,000 were invested in future trading of British Pound Sterling. By 21st march the position of dollar strengthened against Pound Sterling and it has hit two and a half month low against it. On 21st march afternoon, the 1BPS = $1.9442 But the British Pound Sterling increased by 12 percent over dollar from 5th march to 21st march. Only on 20th and 21st march, the pound depreciated over dollar. This resulted in accumulation of 12 percent. The percentage of profit is 12. In the course of two weeks of the investment no loss is observed in the investment on British Pound Sterling. . 1. The percentage of rate of return over trading period is 12x100/1,00,000 = 12 2. The trading was done for 15 days. Over the course of 15 days it was observed that there is a change of 12 percent. The average change per day is 12/15 = 0.8 3. The standard deviations of the change of the percentages in the 15 days of the trade will be calculated. Before that the changes in 15 days are listed. date trade currency contracts maturity price 5/3/2007 15,000 USD/BPS future 12/3/2007 1 6/3/2007 15,000 USD/BPS future 16-3-07 1 7/3/2007 20,000 USD/BPS future 17-3-07 1 50,000 1st day =10 percent 2nd day= 10 percent 3rd day = 10 percent 4th day = 15 percent 5 th day = 18 percent 6th day = 15 percent 7 th day = 15 percent 8 th day = 12 percent 9th day = 18 percent 10th day = 15 percent 11th day = 20 percent 12th day = 12percent 13th day = 12 percent 14th day = -1 percent 15th day = -1 percent Sum of the percentages = 10+10+10+15+15+15 +15+15+15+15+20+15+12+(-1)+(-1) = 180 /15 = 12 The mean of the percentages of change = 12 The standard deviation = (12-10)­2+(12-10)2+ (12-10)2+(12-15)2+(12-15)2+(12-15)2+(12-15)2+(12-15)2+(12-15)2+(12-15)2+(12-20)2+(12-15)2+(12-12)2+(12-(-1))2+(12-(-1))2 = 4+ 4+4+9+9+9+9+9+9+9+64+9+0+169+169 = 132/15 = 32.4 The standard deviation denotes that the fluctuations vary over a larger area. As the mean is 12 and the standard deviation is 32.4 the fluctuations and the deviations from the mean had been drastic. This has been much on 20th and 21st march. This denotes that there is a larger depreciation of dollar over pound but it had recovered on the last two days of trading. As the trading was done on shorter time period, the negative impact of dollar depreciation over the pound did not show much impact over the profit. . The percentage and range of depreciation of dollar against pound is less than that of Yen. In the course of 15 days using $ 50,000 invested on pound sterling and no future position has been closed due to lack of dollars as it was a condition. The cash is not invested in other money markets or investments, though there is a chance of appreciation of dollar against pound. The reason is that in the short term trading the losses can be managed by the huge profits accrued initially. All the fifteen days the futures were traded according to the present market price and in most cases the dollar depreciated over Pound. The pound depreciated over dollar in the last two days. This situation needs careful observation of depreciation pound. As this happened only in last two days, the need of investing the money in other investments was not considered seriously. At the time of calculating the profit and standard deviation all the future positions were closed. The future positions of the contracts On 5th march, future contract for the buying Pound sterling at $1.9442 On 6 th march future contract for buying Pound sterling at 1.944.2 on 7th of march On 7th March future contract for buying pound at $ 1. 9442 on 8th March. On 8th march future contract for buying pound sterling at $1.9442 on 12th march On 9th march future contract for buying pound sterling at $1.9442 on 21st march On 10th of March future contract for buying pound sterling at $1.9442 on 21 march On 11th of “ “ “ “ “ “ On 12th of ‘ ‘ ‘ ‘ On 13th of ‘ ‘ ‘ ‘ ‘ On 14th of ‘ ‘ ‘ On 15th of ‘ ‘ ‘ ‘ On 16th March ‘ ‘ ‘ On 17th of March ‘ ‘ ‘ On 18th of March ‘ ‘ ‘ On 19th of March ‘’ ‘ ‘ All future contracts are closed by buying pound sterling at the price mentioned in the future contract. The total profit and loss account of the trade Date euro Yen bp total profit 5/3/2007 6/3/2007 7/3/2007 8/3/2007 9/3/2007 10/3/2007 11/3/2007 12/3/2007 $2,250 $4,000 $1,800 $8,050 13-3-07 $8,000 $8,000 14-3-07 $4,000 $4,000 15-3-07 16-3-07 $1,800 $1,800 17-3-07 $4,500 $2,400 $6,900 18-3-07 $2,250 $2,250 19-3-07 $9,000 $16,000 $6,000 31000 The gross profit accrued by the trading is $31,000 by the time of closing the trading and future contracts. euro yen BP % of return 9 16 12 S.D 4.53 8.8 32.4 Information ratio 1.986755 1.818182 0.370370 Read More