From the September 01, 2011 issue of Futures Magazine • Subscribe!

True cost of learning: Model implementation

At the University of Dayton, within the Hanley Trading Center, the Flyer Forex Fund (FFF) has been coming together. FFF is a leveraged currency portfolio that is managed by a student-run proprietary trading group. It utilizes a non-discretionary algorithmic model that incorporates trend indicators including volatility, momentum and GIRTH (see "Learning to trade: It’s academic," October 2009, where the GIRTH model is defined).

FFF has two primary goals: 1) To educate student-members on finance by providing them with an in-depth experience trading real money in the spot currency market; and 2) to teach student-members the disciplines of money management to prepare them for financial management positions. For the academic year 2009-10, FFF was managed using simulation money. It was hoped that simulation trading would reduce human errors in execution.

By October 2010, a 15-member advisory board was formed to help guide the fund. The advisory board covers a wide range of areas: Corporate finance, energy trading, risk management, commodities, intellectual property, private wealth, hedge funds and interest rate strategies. That same month, the fund began to trade real money with a long position in the euro on Oct. 29 at 1 p.m.

In an effort to get the fund up and running quickly, FFF is solely owned by Prof. Leslie K. McNew. It is funded primarily by McNew with some student contributions in the form of non-refundable club dues. McNew manages the legal issues, tax consequences and intellectual property of the fund. The fund accepts no third-party money and holds a non-profit status.

The fund trades spot currency, specifically the EUR/USD, implementing the GIRTH model. Currently, positions are in €10,000, with a margin of $320 per position. Profit per pip is $1. At a spot of €1.4676 and a position size of €10,000, total leverage could be as much as 46:1. The fund has $2,500 in trading capital at FXCM. The FXCM system also was used during the simulation stage at the university in the academic environment. The fund holds $2,515.21 in reserve at Wells Fargo. As we prepare for a new school year, we report what we have learned operating FFF.

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