ECONOMICS OF FUTURES MARKETS
TERM PROJECT

OBJECTIVES

 

  1. To gain experience and insight into futures markets and process of trading futures contracts for speculative and hedging purposes.
  2. To become familiar with the stock market and follow a particular stock.
  3. To determine factors which influence prices and price trends of both stocks and futures.
  4. To become familiar with current developments relating to futures and stock markets.

            The term project may be completed by groups of 1-3 people. 

Due date is by beginning of class December 07, 2011 The project should be submitted on Sakai and a hard copy should be submitted during class (on Dec 07).

If you include information from web sites or any other source, you must credit your source.  Plagiarism will not be tolerated.
 

PROCEDURES

PART I - THE COMMODITY
 

  1. Select a futures contract and a specific contract month for intensive study.
  2. Introduction - Include a brief history of the commodity you are trading including production (if agricultural), and why the commodity is suitable for trading on a futures exchange. Explain who uses the commodity and for what purposes.  Also explain all hedging applications.
  3. Contract specifications - Determine margin requirements, price quotation, minimum fluctuations, daily trading limits etc.  You should be able to find this information on the internet.  Check the links page.
  4. Construct a bar chart or use a pre constructed one from an internet site – we will go over this in class.  Include open interest and volume.  Use total open interest for all contracts not open interest for your contract month. Instead of constructing a chart on your own, you may use an internet chart.  Be sure to give credit for all sources.
  5. What happened?
    1. Technical Analysis
      • Explain all major price changes, breaks and other chart pattern.
      • Explain resistance levels, support levels and trend analysis.
      • Explain trading volume and open interest, particularly any abnormal changes or developments. (Open interest and volume may also be relevant to Fundamental Analysis)
      • It is fine to explain technical patterns via text in your paper but you also need to draw and identify them on your graphs.
    2. Fundamental Analysis
      • Determine and explain all fundamental factors that might affect the commodities price.  Identify specific price changes caused by supply and demand fluctuations.  This information is sometimes more difficult to find.  Generally when you see price gaps or significant changes in open interest or volume there is a fundamental cause for this change.   It is likely that if you look for new items from that date they will explain what happened.
      • Look at long term cycles and explain economic factors which influence these long term fluctuations.


PART II - STOCK REPORT
 

  1. Choose a stock, report on what the company does, its financial position etc.
  2. Technical Analysis - Same as commodity but there is no open interest. For your stock you should be able to download historical price data from the internet.  Use price information from January 2nd to November 30, 2011.  Since price information is easy to obtain for stocks, you must construct your own chart using a spread sheet program such as M.S. Excel or Open Office Calc.  We will go over how to do this in class.
  3. Fundamental Analysis - This is based on the company’s financial position, current earnings, and potential earnings.  You should be able to obtain all relevant information from an annual report.


PART III - PAPER TRADING
 

  1. Trading in stocks will be done through the Stock Trak Stock Market Simulation Game.  Remember, this is a competitive game.  The goal is to make as much money as possible.  We will go over game registration and specifics of the game during class.  The registration cost is approximately $25. Since all students in the group should have individual trades, you can compare your strategies and success or lack of success in the term project.  Each student’s strategies should be explained.  All students should make a minimum of one stock trade, one commodity trade, and one options trade.  Someone in the group should do at least one trade for the futures contract you are following and one trade for the stock you are following.
  2. Profits and losses

 PART IV - CONCLUSION

  1. You're on your own here.  Make sure you include both your experiences with trading commodities and with the stock market game.