Fast Start to FTS Trader

Welcome to the online instructions for using the FTS trader. These instructions provide you with a quick summary of the basic operational details for using the FTS trader. The following topics are covered:

Login Screen for the FTS System

Launching the FTS Trader from the Virtual Classroom

Login Screen for the FTS Trader

Screen Details (During the Login Period)

Screen Details (Immediately Prior to Market Opening)

Making Market (Limit Orders)

Taking Market (Market Orders)

Central Limit Order Book

Using Excel to Help Improve Your Trading Performance

Help for Assessing What a Good Price Is?

Login Screen for the FTS System

How Do I login for the First Time?

Point your Browser to either www.ftsnet.com or www.ftsmodules.com to bring up the login screen.

If you have previously completed the one time installation of the run time libraries, enter your login and password to immediately proceed to the Virtual Classroom. Otherwise, continue with this step to install some run time libraries onto your PC.

One Time Install of Some Run Time Libraries: If you are logging in for the first time from your PC you will need to complete a one time installation of some run time libraries. You can do this using either Internet Explorer or some other browser. Depending upon what type of browser you are using follow carefully the online instructions (see above screen display).

Installing to a Networked PC: If you are using a network computer that is locked down, you will need to login as a local administrator to install the run time libraries. After the one time installation is complete, you can use the FTS System by logging in and then immediately proceed to the Virtual Classroom described next.

Launching the FTS Trader from the Virtual Classroom

How Do I Run a Program from the Virtual Classroom Page?

Once you have entered the Virtual Classroom (see screen image above) you will see the various parts of the Financial Trading System. To launch the FTS Trader double click on the FTS Trader hypertext in the top left hand corner of the matrix of FTS System Components.

You can run FTS Trader directly from the web. Depending upon what browser you are using you will see something similar to the above screen titled File Download. Click on Open, and you will then see the login screen automatically launched as described next.

Login Screen for the FTS Trader

How Do I login to the Market as a Trader?

Market IP Address: This must be filled in correctly. It is the address for the central market PC. This lets you communicate to the central market book. Enter the correct IP address by typing in the correct numbers into the text box as illustrated above.
Trading Name: Enter a pseudo trading name. If you are participating in a classroom trading session you will be identified by your pseduo name only (not your real name). If you are logging into a trading session that runs over days (i.e., you login and logout whenever you want), then your trading name is your unique login ID and should be selected carefully.
Password (if required): If this label is highlighted, you have a pre-assigned password for logging into the market. Otherwise ignore.
Trader 1: Enter your real name, plus the name(s) of your trading partner(s), if any, in the text boxes Trader 2, Trader 3 etc. In the above example this is Top Traders and the actual names are Carolyn Jones and Tom Braddock in this sample trading team.
Send Data: Usually you leave the last row of the login screen blank. This row lets you send additional information to the market if requested by your instructor. For example, if trading from a remote site you may include the site name or you may be required to submit a forecast that is relevant to the case being traded.
Buttons: Connect and Exit. If you have the correct IP address (plus filled in Trading Names etc.,) and your instructor has launched the central market, you can click on Connect to register with the central market. If the Connection is unsuccessful check the IP address you have entered or check whether the Central Market is ready. If you want to quit, click on the Exit button.

If you get an error message here when you click on the Connect Button, double check that the Market IP address you have entered is correct. In addition, you will not be able to log into the market until the Allow Connections Button (a button on the Central Market Screen) has been clicked. So at this stage you may have to wait until the moderator of the trading session is ready to start the market.

Screen Details (During the Login Period)

If you have attempted to log into the market has allowed logins you will see the above screen. Details are below.

If you attempt to login too early (i.e., before the moderator has clicked on the button that Allows Connections in the central market program. You will have to re-login to join the market.

Screen Details (Once you have logged into the Market)

Once your Instructor permits logins your trading screen appears as above (markets and positions are case specific (illustrated for trading case B01)).

Three columns in bottom right hand side are: Position, Last and Payoff. Position contains your current endowment of each security. This can be negative if short positions are permitted in the case. Last: this will contain the last traded price once trading starts. Payoff: this contains realized dividends/coupon payments etc., at the end of each trading period, plus at the end of the trading trial it contains the final marked value per security.
Bottom left side of the screen contain the security markets open and each security's name as described in the trading case. The yellow boxes will contain the current best bid and ask for each security.
Hand Signals: Once the market opens for trading these provide a quick way of increasing (lowering) a bid (ask), selling to (buying from) the current bid (ask) and trading on margin account (only if this is described in the trading case).
The green dollar symbol is only used if margin trading is part of the trading case. It lets you liquidate part of your position at the case specified reservation prices if your margin accounts are in technical default.

Text boxes relevant to trading are in the top center part of the screen.
Trading case information is presented in the top left side of the screen. A trading case run within a class session is conducted over multiple independent trials to permit the trading crowd to gain experience with the trading case. A trial may consist of one or more periods as defined in your case write-up. When the market opens you will see what trial/period is current, plus how many seconds left in the current trading period. The latter is in the text box labeled Time Left:
Each trial is independent, but you will earn a trading bonus (as described in your case) that cumulates across trials. This is referred to as Cumulative Grade. The text box Last Grade refers to the grade cash you earned at the end of the current trial. This only appears at the end of each trading trial.
The text boxes in the top left part of the screen, refer to the following: Market Value: This is the current market value of your position. Note this number may or may not be informative during a trading period. This is because it is marked to current last traded prices (which may or may not reflect the final marked values of the securities you are trading as described in the trading case). Risk free rate: This is the money market rate of interest you earn on any cash you hold or pay if you borrow cash. Cash: This is your current money market balance (positive if long cash and negative if borrowing cash). It does not reflect current interest accrued or owed during a trading period.
If the trading case has public and or private information it will be displayed in the text box with the word Information currently in it. This information will be relevant to the security name that you have currently selected by clicking on a security name (not displayed currently).

Making Market (Limit Orders)

How can we trade -- there are no prices?

Before any trades can take place someone in the trading crowd must be prepared to make market in a security. This means post a bid to buy up to some quantity or post an ask to sell up to some quantity. How you do this is described below.

If you submit a bid, you must send a price and a quantity. That is, you are submitting an order to buy up to the price and quantity you send. This is a buy limit order consisting of a price/quantity pair, such as 93.50 and 1000 as illustrated above for the Coupon Bond. In this example, you are prepared to buy at any price up to 93.50 per unit and any quantity up to 1000 units. To submit the above bid complete the following steps:

First a single click on the security name highlights the name. In this example a single click on the name Cp Bnd under Security Name highlights this name in the upper center part of the trading screen (i.e., see Cp Bnd highlighted above the label Price).
To make market for the Cp Bnd enter some number beside Price (current example this is 93.50) and then enter some quantity beside Quantity (current example 1000). You can now choose to click on Bid or Ask to submit a bid or ask to the market. If you do submit a bid or ask and it is currently the best available to the market it will appear on the main trading screen, otherwise it will appear in the book if it is within the recorded depth of the book. Note: You can see the central limit order book for a particular security by double clicking on the name of the security. This is described in more detail below.
Hand Signals as a Market Maker: Once someone in the trading crowd has submitted a bid (ask) you can use hand signals to increase (decrease) the bid or ask if you want to. The corresponding hand signals point up to increase or down to decrease the existing bid/ask on the market. The amount that you increase or decrease the bid or ask is by a “tick.” The size of the “tick” is specified via the Options menu item by selecting the sub menu item Tick for Bid/Asks. Permitted tick sizes are 0.01, 0.10 or 1 relative to the decimal price. The quantity you want to submit is specified as the the number beside Quantity label in the center part of the trading screen above. In the above screen this number is set to 1000 and so using the hand signals for making market would result in bids or asks with a quantity equal to 1000 units (upper limit is 10000).

Hand Signals as a Market Taker: You can also use a hand signal to sell to the current bid or buy from the current ask. You can specify the quantity via the sub menu item for Options referred to as Quantity for buy/sell. This can be 10, 100 or 1000. Alternatively, you can override the pre-set by entering a number directly into the Quantity Text box in the top center part of the trading screen. In the above example, the preset is overridden because the quantity box has 1000 in it. Finally, just click on the horizontal hand signal beside the bid to sell to the bid, or the horizontal hand signal beside the ask to buy from the ask up to the requested quantity.
Central Market Book: You can check the current depth of market for any security by double clicking a security's name and inspecting depth from the pop-up window. This is described in more detail in a subsequent section.

You can clear bids or asks in a particular security that you would rather not have posted to the market (as long as you clear them before someone else hits them). To do so requires a single click on the security name to highlight the security and then click on the button Clear My Bids or Clear My Asks (whichever is relevant). This will clear all your personal bids or asks from the central market book for the security selected.

Taking Market (Market Orders)

Suppose bids and asks posted -- how can we buy or sell?

A market order is an order that is executed strictly on a first-in-first-served basis. A market buy order buys from the best available ask up to the quantity specified. A market sell order sells to the best available bid up to the quantity specified. That is, a market taker submits market orders which are much more likely to be executed quickly. The cost of this execution speed is that the market order pays the spread (i.e., buys at the ask and sells to the bid).
In the FTS markets there are two types of market orders:

Type I Regular market order: With this order you submit a quantity only and it is executed immediately at the best available bid or ask depending upon whether it is a market sell or market buy order. Type II submits both a price and a quantity.

Type II A limit market order: A limit buy order is filled at the prevailing best ask so long as it is equal to or lower than the buying price specified. Similarly, a limit sell order is executed at the best available bid so long as it is at least the price specified or better. A limit market order also lets you work up or down the book until either the quantity or price constraint is met.

Notice that market orders (regular, and limit market orders) are processed such that you pay the spread. That is, if you buy you pay the ask price. If you sell, you sell to the bid price. The only way you can avoid paying the spread is to become a market maker as described in the previous section. However, if you want to buy or sell quickly the market order is the fastest order for trading.
You can submit a market order in different ways. First, click (single) on the name of the security you want to trade. Enter a quantity in the text box beside Quantity (top center of the trading screen). You can leave a standard number here if you want. Then click on the button Sell to Bid (for a market sell order) or Buy from Ask for a market buy order.
To submit a market limit order, follow the same steps as for a market order with the one difference. You must specify both a price and a quantity and then click on Sell to Bid or Buy from Ask to execute a market limit order.
A quicker method for submitting market orders is to use the hand signals. Just specify the quantity in the quantity text box (top center part of the trading screen) and a market order can be submitted by clicking on the middle (horizontal) hand signal. Market sell if you click the hand signal beside the Bid and a market buy if you click the hand signal beside the Ask. You cannot send a market limit order this way.
How to trade down the book? A market order will only be filled at the current best bid or best ask, whichever is relevant. It will not trade down the book to fill the quantity. This is for the buyer/seller's protection to ensure they only get the best available. If you want to trade down the book you must submit a market limit order. A market limit order will work down the book until the quantity is filled or the price constraint is violated.
Example: Refer to the above screen sample. If you transmit a market buy for 2000 units and this is the first to be executed, your order is filled at 76.25 per bond for 2000 units. The cost is 2000*76.25 = 152,500 and so clearly the case must permit borrowing for this transaction to be executed given that your current cash balance is 1000.

Central Limit Order Book

What is the central market limit order book, and how does it work?

A central market limit order book for each market open has the set of current bids listed in decreasing order by price with ties resolved on a first-in-first-served basis. Asks are listed in increasing order, again with ties resolved on a first in first served basis.
To access this book first double click on the security name and then use the drop down menu for the bid and ask respectively to see the current market displayed. This is illustrated in the above screen sample.

Above example: You can observe that the best current bid is 71.86 for 4000 units, followed by 71.76 for 4000 units etc.,. The ID denotes who is the current market maker. On the Ask side you can see that the current book is: 76.25 for 4000 units, 76.35 for 4000 units and 76.45 for 8000 units. In the above example, consider trader 2. They have the best bid/ask posted for the Zero Coupon Bond. As a result, if these posted prices are simultaneously hit for the 4000 units on each side, then trader 2 will earn the spread. In this example, the spread is worth 4000 * 4.39 = $17,560 if the full 4000 units are traded on both sides. Aside: “Hit” is a term used by some traders when the prevailing bid or ask is taken by a market order for the entire posted quantity.
Bid/Ask Spread Summary: The difference between the current bid and ask prices. In the above example, the best bid is 71.86 for 4000 units and the best ask is 76.25 for 4000 units. The spread is the difference (76.25 - 71.86 = 4.39). A market maker attempts to earn the spread by posting bids and asks. That is, the market maker, if successful, buys at the bid and sells at the ask. A market taker (one who uses market orders) will pay the spread because they buy at the ask and sell to the bid.
Additional useful support is the current VWAP (Volume Weighted Average Price). The FTS system automatically displays information on the current Buy VWAP, Sell VWAP and traded VWAP. VWAP is commonly used by practitioners as a trading benchmark. That is, good traders attempt to beat the market Buy VWAP when buying (market sell VWAP when selling). In real world markets the trading day's VWAP is sometimes used as a price for processing large or block orders.
This same trading support window also provides you with price graphs (color coded). The color code is Red for bids, blue for asks and yellow for last traded price.

Additional trading support is available to you by linking to an Excel spreadsheet, this is illustrated next..

Using Excel to Help Improve Trading Performance

How can I use Excel to help improve my trading?

FTS trader lets you build your trader support system in Excel. This makes it very flexible with what you can do from nothing to building an elaborate support system. The golden rule here, however, is keep things simple and only add complexity on a need basis. The following information will walk you through the simple steps involved. Note: It is best to do this before the market opens.
Step 1: Link to Excel. Open an Excel workbook. This should have at least two worksheets. The default for Excel is usually three, so launching Excel is sufficient. For step 1 it is best to open Excel immediately at the time you are launching FTS Trader.
Step 2: With Excel open and after you have logged into FTS Trader and the instructor has initialized your screen you can click on the Menu Item File and select the submenu item Excel Support (as illustrated in the top screen dump above). You will see the smaller window open titled FTS Trader Excel Link. This lets you link to your open spreadsheet.
Step 3: Using the FTS Trader Excel Link first find the workbook that you want to link to. It is best to close other workbooks before doing this but if you havent you can select it from the drop down menu. Then ensure that you link to two different worksheets for Market Data and Trading History respectively. In the above example this is Sheet 1 and Sheet 2. Click OK and that is it!
Step 4: Give the focus to Sheet 1 and you will observe that as activity takes place in the market it is automatically updated in your spreadsheet. The rows/columns convention is fixed so that you can plan your support around these cells. Names are in Row 1, Security 1 prices etc., are in row 2, Security 2 prices etc., are in Row 3 and so on as determined by the trading case. In the row after the last security your cash appears. You can program your support around these fixed cells if you want.
Step 5: Give the focus to sheet 2. Now you will see your personal trading diary written out. This is automatically updated as you submit trades/bids/asks to the market.

Step 6: By opening Excel and saving it after the trading session you can monitor your own personal trading performance. For example, suppose you were an active market maker. You may now be interested to see whether you were able to buy on average below the market volume weighted average price (VWAP). Similarly, when you sold were you above the market VWAP?

Help for Assessing What is a Good Price Is?

Some basic drivers of Price Discovery

Each FTS trading creates a trading problem that is designed to reinforce the important concepts you learn in the classroom. The objective of the exercise is that you learn how financial markets work, as well as important theoretical concepts, from personal trading experience. The trading screen usually opens without any prices. This is because you are a member of the trading crowd, whose task it is, to discover prices for the securities being traded. This is the major objective of every financial market -- to promote efficient price discovery and provide liquidity. As a result, you are encouraged to relate important classroom concepts to the prices you observe in the FTS markets. This will help improve your personal trading performance, as well as allow you to become better acquainted with important concepts.

Arbitrage Free Prices: A useful starting point is to first learn how to apply the concept of arbitrage free pricing. A fundamental property of predicted market prices is that they are “arbitrage free.” That is, it should not be possible to construct a trading strategy that requires zero wealth and yet generates a positive return. This is often referred to as the “free lunch!” As a trader you should always check for the possibility of an arbitrage opportunity. That is, an opportunity to make money relative to the public and or private information that you may have in a trading session. Some simple examples are provided as follows.

Bid/Ask Spread: The bid should not exceed the ask at any point in time. For example, suppose the posted bid/ask spread for a stock was: $50.50/5000 and $45.50/5000. That is, a trader is bidding $50.50 per share for up to 5000 shares and another trader is asking $45.50 per share for up to 5,000 shares. If faced with this opportunity an alert trader would attempt to sell 5000 shares at the bid plus at the same time buy 5000 shares from the ask. The pure profit would be $25,000 if successful.

Buying Below or Selling Above Possible Payoff Bounds: Suppose you are trading a zero coupon bond with a face value equal to $100. It is clear that if you could sell this bond for $105 an arbitrage opportunity exists. As such you would like to sell as many as possible at $105 because even if you are short your total exposure per contract is $100 and you receive $105.

Arbitrage free Derivative Pricing: Some of the arbitrage free pricing arguments get a lot finer than the simple examples above. In fact understanding modern derivative pricing theory rests upon understanding arbitrage free pricing. As a result, in FTS derivative pricing cases being a member of the trading crowd is a great way to become acquainted with modern derivative pricing theory.

Opportunity Costs and Price Discovery: As the trading crowd gain experience other issues also have an important predicted impact upon price discovery problem. For example, a second important issue is the concept of opportunity costs. If you buy a security in the spot or cash markets, the FTS system automatically withdraws cash from your money market to cover the purchase cost. As a result, you give up the opportunity of earning interest on this cash. This interest is the risk free rate of interest that is applied in a specific trading case (which can be zero or some positive amount). This rate should be compared to the expected return you assess when buying a security in the market. That is, expected return depends upon both the price you paid to purchase the security plus the future cash flows that you expect to receive from this security as described in the case.
Price Discovery from a Dealer’s Perspective: A dealer cares more about earning the spread than the actual prices being bought and sold at. So if you are trading from a dealer’s perspective you will of course want to be aware of the no arbitrage bounds, but you must also assess at what prices the trading crowd is prepared to buy or sell at. If you post spreads that are too wide then your posted prices arte likely to be pushed down into book or the liquidity in the market you are dealing in will dry up. So you need to be competitive if you are posting prices as a dealer.

Be Alert and Keep Trading Strategies Simple: You will find that the markets are very competitive and as opportunities arise it is the first in that gets to exploit the opportunity. Example: Two traders in the same market were both very good students and knew their finance theory well. Trader A observed that prices were such that there was an implied cross market arbitrage opportunity and drew the professor’s attention to this situation. Trader B observed the same opportunity and quickly executed the trades required to exploit the arbitrage opportunity. Even though both traders had a good conceptual grasp of the material, Trader B was the better trader and had a better understanding of how financial markets work!