Course:FRE517

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Futures Trading in Agricultural Commodities
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FRE 517
Section:
Instructor: TBA
Email:
Office: TBA
Office Hours: TBA
Class Schedule: Mon 12:30pm - 2:00pm
Classroom: MCML 260
Important Course Pages
Syllabus
Lecture Notes
Assignments
Course Discussion

Course Description

In this course, students will learn how commodity futures markets work, practice risk management, and test their own trading strategies in a competitive setting. This is a face-to-face course that includes an accompanying online component: students will trade in the online competitive setting of the 2016 CME Group Trading Challenge.

Students are expected to do the online trading outside of the class time. During class time the instructor will lead an overview of the traded futures contracts as well as issue weekly assignments which will cover contract specifications. The assignments will be designed to assist the teams in formulating their trading strategies, risk management limits/practices and seek out informative websites to guide their trading. During class time, students will also be asked to share their lessons learned, and trading ideas for the upcoming week.

Course Format

Classes of 1.5-hour duration on Mondays and 1 hour duration on Thursdays with RA, for 7 weeks, beginning on January 3rd, 2016. Monday, 13 Feb 2017 is BC Family Day. Make-up class will be held on Tuesday, 14th Feb instead (or Wed, 15th Feb – Juan/Gabi to confirm).

Schedule (Tentative) of CME Group Trading Challenge

  • Jan 10 to Jan 30 Practice Round (3 weeks)
  • Jan 31 to Feb 16: Competition Preliminary Round (3 weeks)
  • Feb 20 to Mar 3: Competition Final Round (2 weeks)

Class Size

Minimum 6 students, Maximum 15 students. The CME Competition allows 3 graduate teams to compete per university and each team is required to have 3 to 5 students from the same academic program. MFRE wants to register a minimum of two teams, in order to make the class more interactive, hence a minimum of 6 students. Total class size of 9 is ideal.

Interested students should apply by Dec. 5th (by sending an email to juan.fercovic@ubc.ca) with a statement of interest, describing why they think this class would be beneficial for them. Team registration for the competition opens in mid-December. Students will be selected on the basis of their academic preparedness and their level of interest. Selected students will hear back by Dec 12th and teams will be registered then. Because good teamwork is vital to a good experience and learning outcome, it is preferable that students co-ordinate their team preferences and indicate this to the TA.

More details about the competition can be found here: http://www.cmegroup.com/education/trading_challenge.html

Course Goals

  • To learn about commodity futures – in theory and in practice.
  • To understand and experience the roles of portfolio manager, risk manager, and analyst in a trading team.
  • Portfolio Manager: To gain experience in portfolio construction, team management and assessment of outcome over 6 weeks of trading and usefulness in determining longer-term results.
  • Risk Manager: To identify, evaluate, and articulate the risks associated with trading commodity futures (including novation and margining), and to be capable of managing these risks.
  • Analyst: To analyze factors driving commodity prices, filter and weight old vs new information. To practice making trade recommendations and evaluation their effectiveness.

Grading

Activity Date Percent of Grade
Assignments Week 2 and Week 3 40%
Class Participation Competition Weeks 50%
Final Report Due 2 weeks after the end of the competition 30%
Peer Evaluation Due 2 weeks after the end of the competition 10%
Total: 100%

Problem Sets

At the end of the first class, half of the students will be assigned to play the role of analyst for the week. The other half of the students will be assigned to play the role of risk manager. Each student will be given an assignment based on their role. In the second class, students will submit their assignments and also give a short presentation (5-10 min) on their assignment to the class.

At the end of the second class, the students will swap roles and prepare respective assignments for the third week.

By the end of the third week (end of practice round), the teams are expected to choose the roles of portfolio manager, risk manager and analyst(s). These roles will stay fixed for the duration of the competition.

Competition Weeks

Starting week 4 (start of competition prelim round), teams will take turns to review and discuss their past performance, and also share their overall strategy and trading ideas for that week.

Participation

As a peer learning class, participation is highly valuable and desired. The class participation grade will be based on contributions to class discussions during the competition week. In particular, students will be taking on different roles (portfolio manager, risk manager, and analyst). Participation will be graded weekly, according to how well each student has played their respectively assigned roles during the competition. The instructor will be assigning these grades.

Final Report

Each group will submit one group final report. This final report will build upon the assignments in week 2 and 3. Students will describe how the selected contracts should have been traded over the last six weeks. This report will also include an analysis and review of the factors driving prices for the chosen contracts, risk management and team management.

Peer Evaluation

Peer evaluation is an important part of the grading rubric because students spend a majority of the time for this class together outside of the classroom (trading a few hours each day). Each student will fill out a peer evaluation form for other students in the class. Peer evaluations will be weighted more heavily for team members (7.5%) vs. non-team members (2.5%). The instructor will explain the rationale behind such a peer evaluation and will go over the evaluation rubric during the first class

Reading Questions

Over the course, students will be asked to answer in a written form some questions about the assigned readings. This exercise will ensure that students are keeping up with class material, as well as encourage class participation.

Academic Dishonesty

Please review the UBC Calendar “Academic regulations” for the university policy on cheating, plagiarism, and other forms of academic dishonesty. Academic dishonesty will be dealt with very seriously in this course.

Online Course Material

Available at Connect: http://www.connect.ubc.ca. You are required to regularly login to your course page for FRE 517. Your syllabus, course-lecture slides, additional material, announcements, assignments, and grades are available.

Course Outline and Readings

How to use this course outline: This outline is a collection of papers, and topics commonly taught in agriculture and resource policy analysis. Wherever possible a stable link to the paper is provided. While some of these links will work anywhere, many of them are digitally protected requiring a subscription. You can access this material by logging in through your account at the UBC library, or on any computer connected via Ethernet on the UBC network. For some articles no link is provided, in that case, please search for the article (if you search via the UBC library you will find access to its electronic version).

RA Sessions

1 hour RA Sessions will be held at the end of every week.
During the practice weeks, the RA will teach students how to use the CME software and also provide support with the assignments. During the competition weeks, the RA will provide critique and support on trading ideas and feedback.

Software and Readings

Software:

  • CME Group CQG trading platform

Readings:

  • Bloomberg, Reuters News, USDA crop reports, Economic Releases
  • Clark, E., Lesourd, J.-B., & Thiéblemont, R. (2001). International commodity trading: Physical and derivative markets. Chichester [UK: Wiley].
  • Katsanos, M. (2008). Intermarket trading strategies. Chichester: John Wiley & Sons, (Asia) Pte Ltd.

Tentative Lecture Topics

Admin & Preparation
  • Dec 5: Deadline to submit statement of interest to instructor
  • Dec 7: Registration of teams by the instructor
  • Dec15 to Jan 4: Participants will be given some background material to read
Weeks 1-4
  • Review of the basics of commodity and futures contracts and in particular, the origin of futures markets and function that they serve.
  • Discussing the role of new information in markets
  • Discussing the role of financial speculation in commodity markets
  • Weekly assignments will cover specific commodity contracts - margin calculations, position sizing, and trading hours
  • Fundamental and Technical review of the various contracts and strategies (spreads) allowed in the competition, including Corn, Soybeans, Palm Oil, Live Cattle, Crude Oil, Natural Gas, Forex (EURUSD), Gold and S&P 500.
Weeks 5-7 Discussing hedging strategies used in the corporate world, using derivatives such as swaps, collars, options, swaptions and how market intermediaries structure such solutions using the futures markets
  • Choosing portfolio of contracts to trade, by identifying the highest reward to risk potential contracts
  • Formulating trading and hedging strategies for the competition
  • Risk management utilizing the following:
    • Daily/weekly Reporting
    • Daily/Weekly Trading Limits (volume)
    • Overnight/Daily/Weekly Position Limits (leverage limits)
    • Portfolio optimization utilizing reward/risk ratios
  • Weekly student led discussion about their trading experiences