Market Risk Analysis and
An Experiential Approach to Financial Economics
“Getting Started with FTS”
Prof. Jim Forest
Department of Finance
University of Connecticut
Class Session 1
• In this session we will get acquainted with the
FTS real-time trading system.
• Students will participate in a semester-long
trading competition in one of the below markets:
1. Dow 30 Stocks
2. Treasury Bonds and Fed Funds Futures
• Each case involves … participants
• Trading Costs: $9.99 per trade
• Initial Funds: $1 Million “Cyber dollars”
• Your Goal: Outperform your peers over the term
(you need to start building a strategy right away)
Hint: Never marry a trading strategy or security!!
Goals of This Session
• To introduce the trading interface
• To engage in our first trades
• To offer initial suggestions of basic
strategies you may want to experiment
with in the early stages of the semester
The FTS Interface
Getting Our “Feet Wet”
• We will take you on a quick tour of the basics of
the FTS real-time
• Note: You should download, print and read the
real-time trading manual to learn more details of
the trading capabilities of FTS
• You may enter any strategy the system will allow
Starting Up FTS
• Step 1. Run the FTS System Manager and
select the FTS Real Time Trader Client (as
Getting Into the System
• Step 2. Launching
the FTS Real Time
Trader Client: Click
on Run Selected
Application using the
button below FTS
Real Time Trader
• Now you are in the
Enter Appropriate Data
• Select Language: Select a language
• Select Pre-specified Server: Select the
• IP Address of Server: Enter your IP Address or
• Port Number: Leave this field as it is unless
• Trading Name: Enter your assigned trading
• Password: Enter your assigned password
The Main Window
The Support Window
• Notice the upper
• Support Window:
The Support Window
contains all of your
TIP: The Second Tab has a drop-down
support pages, that allows you to choose support
including access to options such as Bloomberg, Yahoo, and
the Fed websites. After we select a
web information. security, you can check it out!!!
Analytical Support & Reports
• This window displays
reports and analytical
support both of which
are controlled by the
two drop down menus
located at the top of
the window (defaults -
US Dollar and Select
• This window contains the
following three tabs:
• Login to Server:
Displays login details
• Trade Securities:
Displays a screen that
allows you to submit
markets orders for all of
the tradable securities in
This window displays the securities that are
available to be traded.
Your First Trade
We will start by taking a long position in any
one security of your choice.
Go long one unit only after a short break to
allow you a little research
Suggestion: Buy Low
(But how do I know what is low??)
10 Minute Break for Research
• Take some time to research one or more
securities – Build a strategy for a long
• Perhaps a technical analysis strategy
would be a basis as we have just
scratched the surface.
• If you are in the Dow case, you may want
to use a metric such as PE ratio.
What did you do for your first
“Pulling out the stops”
Remember: A Stop Loss Order…
…Is a special limit order to sell below (buy
above) the current price on a long (short)
Any combination of buy or sell stop orders can be submitted by selecting the
appropriate radio control.
Above you enter your price and quantity.
The stop order specifies the price or “worse” that you want to transact at.
This order type is used to close out a trade if the market moves against you.
Safer to Use Protection!!!
• At this point I want you to decide on whether or
not to use a stop order to manage the risk of
your long position.
• Note: If you set the stop too close to the current price you run the
risk of being “stopped out.” This can be a problem in a volatile
market as you are selling low!!
• This is an example of TRADING RISK
Activity 2. Stop Time
Two Minute Break:
Enter a stop order
What determined the stop out price for you?
Note: When you have a stop order out…
…you don’t want to be away from the market for
This is why your spouse the trader worries about
the yen during dinner!!!
You are now happily married to the market and
Other Trade Possibilities
• Limit Buy Order – This is when you are
interested in a long position for a given
security, but below the current price
• Short Sale – Again, this is a strategy to
profit on a price decline.
We could also conjure up other strategies…
• Limit Short Sale???
• Stopping out of a Short Position???
Limit Short Sale
• I might want to enter into this trade when a security takes
a big jump in price.
Imagine One Situation:
A hedge fund manager uses a programmed trading
strategy to capitalize on reversals to large price swings.
She programs a limit order to short sell 10 shares of IBM
if the price rises to two standard deviations above the
She is betting that, if the market jumps by that large a step,
it will retrace from that level.
Stopping Out of a Short
• When might I want to enter into this trade?
• When I have a short position that I want to
cover against a big rally (sharp increase)
in the price.
Imagine One Situation:
Magic Jack has just shorted a bunch of Euro based on his
trading model. Jack doesn’t usually pay attention to
fundamentals but his friend Professor Jim warns him that
ECB is meeting today and may surprise the market with
a rate hike!!!
Jack doesn’t want to cancel the trade but he wants to get
some protection in the event that the Professor’s fears
Jack places a stop order on his short Euro position
(converting it to dollars) at one standard deviation above
the current price
Just to Be Safe!
• You are now equipped with some basic
trading knowledge from which to develop a
strategy to outperform your peers.
• Advice: Given that we are just starting,
start of with small positions.
• Suggestion: Stay at least 50% in cash for
the first couple weeks until we have some
more tools in our tool chest and have
performed more research in our market.