A Reflection of Lessons from Trading Simulations

A Reflection of Lessons from Trading Simulations

Introduction

Provide a key brief of what the trading simulation was all about.

Define trading simulations and importance to business-related professionals (Zhang, Zohren, & Roberts, 2020).

Structure of the report

Data Analysis

Analyze data from your own trading history

Give a brief history of what you did and how you did it

What informed your key decisions?

What criteria did you make in decision making?

Would you change anything now that you have gained experience on key trading strategies?

What literature did you use to inform some of your decisions?

Summary of the key takeaways from individual trading history

Demonstrate an Understanding of Trading Strategies

Define trading strategies

Mention types of trading strategies

Which key trading strategies do you regard as best practices and why?

Considerations of relevant trading issues (such as, but not limited to, profits/loss, risk, etc).

Literature review (synthesise and blend Material) on key and relevant trading issues

Key

Congruence with your own experience

Linking Personal Observations with Theory and Empirical Evidence

Why simulations vary

Behavioral aspects of trading

Profitability: What is it and how does it impact trading?

Risk: What is it and how does it impact trading?

Liquidity: What is it and how does it impact trading?

Price Impact: What is it and how does it impact trading?

What are you personal definitions of the above and how did they impact your simulation exercises?

Limitations of Simulation

Acknowledge key limitations of your simulation and analysis

How did they impact the entire exercise?

Literature Review

Introduction

Brief overview of liquidity risk

Structure of the literature review

What is Liquidity Risk?

Provide definition from the perspective of various scholars

Funding liquidity risk

Market liquidity risk

Issues in Liquidity Risk and Crisis

A liquidity crisis occurs when demand for liquidity rises while supply falls across a large number of financial institutions or other enterprises. (Discuss)

Widespread maturity mismatches across banks and other enterprises are at the basis of a liquidity crisis, resulting in a scarcity of cash and other liquid assets when they are required. (Discuss)

Large, negative economic shocks or typical cyclical fluctuations in the economy may both generate liquidity crises. (Discuss)

Sources of Liquidity Risk

Lack of Cash Flow Management. Cash flow management gives a business good visibility into potential liquidity challenges and opportunities. …

Inability to Obtain Financing.

Unexpected Economic Disruption.

Unplanned Capital Expenditures.

Profit Crisis.

Causes of Liquidity Issues

Major causes according to extant literature

Liquidity risk management 

Ways to manage liquidity risk

Key Takeaways From Review of Literature

Liquidity defined.

Liquidity risk categories

Rudimentary indicator of liquidity

References

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Kyriazis, N. A. (2019). A survey on efficiency and profitable trading opportunities in cryptocurrency markets. Journal of Risk and Financial Management, 12(2), 67.

Rundo, F. (2019). Deep LSTM with reinforcement learning layer for financial trend prediction in FX high frequency trading systems. Applied Sciences, 9(20), 4460.

Tushar, W., Saha, T. K., Yuen, C., Smith, D., & Poor, H. V. (2020). Peer-to-peer trading in electricity networks: An overview. IEEE Transactions on Smart Grid, 11(4), 3185-3200.

Zhang, Z., Zohren, S., & Roberts, S. (2020). Deep reinforcement learning for trading. The Journal of Financial Data Science, 2(2), 25-40.

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Febi, W., Schäfer, D., Stephan, A., & Sun, C. (2018). The impact of liquidity risk on the yield spread of green bonds. Finance Research Letters, 27, 53-59.

Ahamed, F. (2021). Determinants of Liquidity Risk in the Commercial Banks in Bangladesh. European Journal of Business and Management Research, 6(1), 164-169.

Mohammad, S., Asutay, M., Dixon, R., & Platonova, E. (2020). Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks. Journal of International Financial Markets, Institutions and Money, 66, 101196.

Goodhart, C. (2008). Liquidity risk management. Banque de France Financial Stability Review, 11, 39-44.

Brunnermeier, M. K., & Yogo, M. (2009). A note on liquidity risk management. American Economic Review, 99(2), 578-83.

Cornett, M. M., McNutt, J. J., Strahan, P. E., & Tehranian, H. (2011). Liquidity risk management and credit supply in the financial crisis. Journal of financial economics, 101(2), 297-312.

Vento, G. A., & La Ganga, P. (2009). Bank liquidity risk management and supervision: which lessons from recent market turmoil. Journal of Money, Investment and Banking, 10(10), 78-125.