CME Group is the world’s leading derivatives
marketplace. The group has four exchanges, CME
(Chicago Mercantile Exchange, established in 1848),
CBOT (Chicago Board of Trade), NYMEX (New York
Mercantile Exchange) and COMEX (The Commodity
Exchange). These four exchanges offer a wide range of
global trading benchmarks for all major asset classes.
CME Group’s website (https://www.cmegroup.com/)
provides comprehensive information on derivatives
trading and can be used as the major information source
of this assignment.
Student teams from University of Sydney’s FINC6010
course are going to investigate derivative securities
trading using the trading simulator provided by CME.
The simulator can be accessed after registration (free)
and login (see following links). Initially, each trading
team will have $100,000 to trade but you do not need
use all of the amount.
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https://www.cmegroup.com/education/practice/abou
t-the-trading-simulator.html
https://www.cmegroup.com/trading_tools/simulator.
html
The investigation report should be in a
Questions/Answers format (you don’t need an executive
summary, introduction, and etc.), answering the
questions listed below.
The 10-page report should include everything the
student team wants to report to the management team.
“Everything” means student traders should not send an
enquiry email, asking whether certain items are included
in the 10-page limit. The answer is always – yes
included. The report does not need a separate cover
page.
Put student IDs and student names on the first page of
your report. For each team, only submit one
document and once. Please put “(submitter)” after the
submitter’s name.
For example: Green Soros (submitter), SID 123456;
Walsh Buffett, SID 234567; Jack Rogers, SID 345678.
The report can use charts, tables, calculations,
screenshots, or references (cite sources) for explanation
purpose. There is no font size constraints as long as
others can read your report.
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Marks: 3 marks each for question 1 – 5, 7 and 8 and 4
marks for question 6 (25 marks in total).
The questions are as follows.

1. Login and open the CME simulator, on the left hand
   side you will see the economic calendar. The
   importance of global economic events are ranked
   as low-medium-high. Focus on events with high
   importance. List the high importance events which
   are scheduled to happen from 1 Oct 2020 to 15 Oct
2. What are these “high importance” events?
   Summarize the events and explain why they are
   treated as “high importance” on the economic
   calendar.
3. Move to the main chart of your trading simulator.
   Click on “Equity Index” tag and these are equity
   index derivatives. If a fund manager has a US
   small-cap stock portfolio, which equity index
   derivative under “Equity Index” tag should be used
   for hedging and why?
   The first two under the tag are “E-mini S&P 500”
   and “E-mini Nasdaq-100.” What does “E-mini”
   mean in “E-mini S&P 500” and “E-mini Nasdaq100”?
4. Examine the available contracts for E-mini S&P
5. They have the contract codes such as ESU0,
   ESZ0. Your task now is to decipher these codes.
   Please explain the meaning of (or rules to
   construct) contract codes for E-mini S&P 500. What
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   will be the available contracts for E-mini S&P 500 in
   year 2025 and what will be their contract codes?
6. Click on “Energy” tag and these are energy
   derivatives. The first product is “WTI Crude Oil.”
   What does “WTI” mean? Where is the typical
   location for WTI crude oil’s delivery? What is the
   contract size for “Natural Gas” futures? What is the
   underlying asset for “NY harbor ULSD?”
7. Click on “Metal” tag and these are metal
   derivatives. The first two are “Gold” and “Micro
   Gold.” What are the differences between “Gold” and
   “Micro Gold” contracts? Compare contracts GCG1
   and MGCG1. Are they positively correlated? Now
   select and compare an oil futures contract (e.g.
   CLX0) and a gold futures contract (e.g. GCG1).
   How are they correlated and why?
8. Design and implement a hedged trading strategy by
   taking long positions in “Gold” and short positions in
   “Micro Gold”. Click “Trade” to place orders. You
   have the flexibility to allocate part or all of your
   capital to trade. Explain how your portfolio is
   constructed and show your daily trading profit/loss
   up to 10 trading days (you can use screenshots
   when helpful). You have flexibility of selecting order
   types and contracts but keep your portfolio as
   simple as you can. Your goal is a hedged portfolio –
   the profit/loss should be close to 0 for this longshort portfolio.
9. Click on “FX” tag and these are foreign exchange
   derivatives. Go to “Japanese Yen” panel and look
   at the quoted price. How is Japanese Yen quoted?
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   Then go to “Australian dollar” panel and look at the
   quoted price. How is Australian dollar quoted?
   What are the differences between “Australian
   dollar” and “E-micro AUD/USD”? Click on “Interest
   Rates” and these are interest rate derivatives.
   Examine “Eurodollar” quoted price. Investigate how
   “Eurodollar” is quoted.
10. Now go back to Equity Index tag. We are going to
    trade options. Choose ESH1 (March 2021) contract
    for E-mini S&P 500. Then click “TRADE.” Select
    “OPTIONS” at the upper right corner. Then you can
    trade options. What is the underlying asset of these
    options? Using screenshots to show how you can
    submit a market order to short a call option
    (Quantity =1). You have the flexibility to choose
    among the call options at different strikes etc. Are
    there margin requirements for your trade and why?
    Using screenshots to show how you close your
    short position.
    No further explanation on the questions will be
    provided. Use your judgement. Good luck!
    Note: Please use the following VPN service provided by
    USYD if you have internet connection issues (especially
    for registration to CME simulator).
    https://secure-client.sydney.edu.au/