Constructing Internet futures exchange for teaching derivatives trading in financial markets

摘要

Simulations and games are widely accepted as a powerful mode of teaching and learning. This is especially so in the field of finance in teaching students the intricacies of stock market trading. Stock market simulations complement more traditional methods of teaching finance by encouraging learning by doing, by generating motivation and enjoyment, and by engaging the business student in a simulated experience resembling the "real world." Although there exist numerous stock market simulation games on the Web, they are all "secondary simulations" in that the players cannot affect the prices of the traded securities but must take the security prices "as given" and base the trading simulation on these given prices. Such secondary simulations, however, lose an important dimension of market realism in that in the real stock market, players, especially "big" players such as major banks and large institutional investors, can influence the price of the traded securities. Secondly, being secondary simulations, existing internet stock market simulation games focus almost exclusively on stock trading and cannot realistically simulate the trading of derivatives. Compared to stock trading the trading of derivatives is a lot more complex both conceptually and from a teaching point of view. In this study, we leverage the power of internet technology and design a fully functional internet futures exchange. In our internet futures exchange, the prices of the futures contracts being traded is directly determined by the market participants (players). Additionally, our designed website tackles the difficult task of teaching derivative (futures) trading via learning by doing in a realistic trading environment with real-time feedback where traders can influence the price. Conceptually, this is superior to the use of secondary simulators (existing web market simulation games) where players must take the security prices as given and cannot influence its value through strategic behaviors. This is especially of importance for the teaching of derivative trading in as much as in the real world, powerhouses (large institutional traders) often exert significant influence on the observed derivative prices.