Competence Trainer

Simulation Package: Agri – Time spread – Non-fat dry milk (information)

Short description

Hedge (non-fat dry) milk storage capacity and lock in a future margin.

Hedge (non-fat dry milk) storage capacity and lock in a future margin.

Capacity:

You act in the role of a dairy trader.
You act in the capacity of aggressor.

Task:

Your task is to analyse the forward curve. Identify whether the market is in ‘contango’ or ‘backwardation’.
In case of a steep contango, hedge (non-fat dry milk) storage capacity and lock in a nice margin (by selling the time spread; meaning, you simultaneously buy and sell a term contract, whereby the contract you sell short has a longer time-to-maturity). Watch the value of this time spread to develop. Has your timing been ideal? Could you have improved your performance?

Situation:

Trading of a series of non-fat dry milk contracts, with different times-to-maturity.

Objective:

The aim of this simulation is manifold, namely to understand the pricing of a time spread, to understand the volatility of the time spread and to understand the opportunity and risk that is related to those aspects.
The objective of this simulation is also to master the concept of asset-backed trading (in this case, hedging a physical asset, namely storage capacity).

Conclusion:

At the end of the simulation, analyse your performance. See what you have done and when you have done this and whether it could have been optimised. This way, you learn and optimise your competences.

Financials:

Your working capital at the start is 500.00.
Initial margin per contract is set at 15.00.
Exchange fee and clearing fee per traded contract is set at 0.01.
Position limit per contract: 5.

Note:

Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics, which allows you to analyse while the market is frozen.