Limit Order Book (LOB) simulation
Purpose of pre-game report: plan and prepare about how you will approach the game, your strategies etc.
Purpose of post-game report: review and reflect your performance and trading strategies.
Submit pre-game report (x4) via LMS before you play each game
Submit pre-game report (again, x4) and post-game report (x4) via LMS by 5pm on 2 Oct.
Late submission will be penalized accordingly (see course profile)
Format: 1.5 line spacing, 11pt Times New Roman font. Single line spacing means only the first page is marked per game
Report is marked according to Rubric (see next few slides)
Purposes of the trading simulation:
Apply the theory that we have discussed in class in a simulated trading environment.
Understand how theoretical impact of market factors and implementation of trading ideas may differ from ‘reality’ and seek explanations as to why
Everyone will start with $50,000 cash and 1000 shares
Everyone will receive a specific instruction (see screenshot below). Don’t tell others!
There are two groups of traders (informed vs uninformed). Each student will have the opportunity to play the role of an informed trader at least once.
For liquidity (i.e., uninformed or noise) traders:
Your main task is to sell/buy some shares as instructed (beware of unidentified informed traders)
At the end of the session, penalty (discussed later) applies if you trade more/less than what you should.
In the example below, you are instructed to sell 80 shares by the end of the session i.e., you can buy/sell as many as you like during the course of the session, but your net stocks at the end of the session must be 920; else penalty applies.
For informed traders:
At the start of the session, you will be given reliable tips about the ‘true’ value (V) of the stock. Don’t tell others
For example, you could be given the following tips:
Forward P/E = 10 and consensus EPS = $0.2
Hence, share value (V) ≈ forward P/E * consensus EPS
Your main tasks are to (i) figure out V at the start of the session and (ii) thus trade and maximize profit
You can buy/sell as many as you want –> maximize your profit!