A Report

On

Simulation of
Virtual Stock Exchange

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 Security Analysis & Portfolio Management
FIN-4219

Submitted To:
Md. Mohan Uddin, PhD
Associate Professor
School of Business & Economics

Submitted By:
Md Zahid Ul Islam
ID: 114131055
Sec: B

Date of submission: 30th August, 2017

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 Letter of Transmittal

August 30th, 2017

Dr. Md. Mohan Uddin

Associate Professor
School of Business& Economics
United International University

Subject: Report on Simulation of Virtual Stock Exchange.

Dear Sir,

Here is the report on simulation of virtual stock exchange. I arranged to prepare and submit this
report as the fulfillment of the course security analysis & portfolio management. I believe I have
been able to make an understanding of the subject matter and the important issues that are
essential for understanding. In preparing this report, I have tried my level best and worked with
most sincerity to gather information and make it as well structured as possible.

I have tried to discuss all the relevant points and informations. In writing this report, which was
the first of its kind, I have tried to go by your instructions and apply the concepts learnt in the
class.

Sincerely yours,

Md Zahid ul islam
(On behalf of)
ID: 114131055
Sec: B

Acknowledgement
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At first, I would like to express my deep sense of gratitude to my honorable teacher, Dr. Mohan Uddin,
who gives me the opportunity to make this report on Simulation of Virtual Stock Exchange and assists
me in every way of how to start doing this report, how to think while doing it, how to move forward, how
to analysis and how to comprehend the total thing. I am also thankful for all the times I consulted him and
he answered with the utmost patience and perseverance.

And also I would like to offer my special thanks to my friends, classmates and senior brothers & sisters
who help and support me to complete this report.

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Table of Contents

Serial no Topic Page no

01 Introduction 06
02 Virtual Simulation 06
03 Stock Market Simulator 07
04 Financial Simulator 08
05 Stock Market Game 08
06 Portfolio Strategy 08
07 Philosophy 09
08 Passive Management Strategy 09
10 Which positions exceeded your 09
expectation
11 Position underperformed 10
12 Performance gap 11
13 My transaction history 12
14 What are the key things you 13
learned
15 How will your Virtual Stock 14
Exchange experience influence
your personal investing in the
future

17 conclusion 15

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Introduction:

Simulation is the imitation of the operation of a real-world process or system over time. The act of
simulating something first requires that a model be developed; this model represents the key
characteristics, behaviors and functions of the selected physical or abstract system or process. The model
represents the system itself, whereas the simulation represents the operation of the system over time.

Simulation is used in many contexts, such as simulation of technology for performance optimization,
safety engineering, testing, training, education, and video games. Simulation can be used to show the
eventual real effects of alternative conditions and courses of action. Simulation is also used when the real
system cannot be engaged, because it may not be accessible, or it may be dangerous or unacceptable to
engage, or it is being designed but not yet built, or it may simply not exist.

So, as our course requirements, were assigned by a virtual stock exchange game of MARKET WATCH
website. To act as a prospective portfolio manager (virtually) for my course teacher, my potential clients
have entrusted me with $1,000,000 to invest at your discretion for a couple of weeks.

Simulations typically come in one of three categories:

"Live" simulation (where actual players use genuine systems in a real environment),
"Virtual" simulation (where actual players use simulated systems in a synthetic environment), or
"Constructive" simulation (where simulated players use simulated systems in a synthetic
environment). Constructive simulation is often referred to as "war gaming" since it bears some
resemblance to table-top war games in which players command armies of soldiers and equipment
that move around a board.

Virtual simulation:

Virtual simulations represent a specific category of simulation that utilizes simulation equipment to create
a simulated world for the user. Virtual simulations allow users to interact with a virtual world. Virtual
worlds operate on platforms of integrated software and hardware components. In this manner, the

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system can accept input from the user and produce output to the user.Virtual Simulations use the
aforementioned modes of interaction to produce a sense of immersion for the user.

For example: In finance, computer simulations are often used for scenario planning. Risk-adjusted net
present value is computed from well-defined but not always known (or fixed) inputs. By imitating the
performance of the project under evaluation, simulation can provide a distribution of NPV over a range of
discount rates and other variables.

Simulations are frequently used in financial training to engage participants in experiencing various
historical as well as fictional situations. There are stock market simulations, portfolio simulations, risk
management simulations or models and forex simulations. Such simulations are typically based on
stochastic asset models. Using these simulations in a training program allows for the application of theory
into a something akin to real life.

Stock market simulator:

A stock market simulator is a program or application that attempts to reproduce or duplicate some or all
features of a live stock market on a computer so that a player may practice trading stocks without
financial risk. Paper trading (sometimes also called "virtual stock trading") is a simulated trading process
in which would-be investors can 'practice' investing without committing real money.

This is done by the manipulation of imaginary money and investment positions that behave in a manner
similar to the real markets. Before the widespread use of online trading for the general public, paper
trading was considered too difficult by many new investors.[citation needed] Now that computers do most
of the calculations, new investors can practice making (or losing) fortunes time and time again before
actually committing financially. Investors also use paper trading to test new and different investment
strategies. Stock market games are often used for educational purposes.

For example: investors can create several different positions simultaneously to compare the
performance and payoff characteristics between multiple strategies. A textbook may state that writing a
covered call is synthetically the same as writing a naked put, but in practice there are subtle differences.
With a paper trading account, an investor can set up a bull credit spread and a bull debit spread
simultaneously and watches how the payoff for each position changes as the market moves.

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Other advanced strategies include leverage, short-selling, forex and derivatives trading. Successful
execution and profit generation from these strategies usually require high levels of technical knowledge.
Investors can test these strategies with paper trading to avoid taking on excessive risk due to inexperience.

Various companies and online trading simulation tools offer paper trading services, some free, others with
charges, that allow investors to try out various strategies (some stock brokerage firms allow 14-day 'demo
accounts'), or paper trading can be carried out simply by noting down fees and recording the value of
investments over time.

Financial simulators:

Financial market simulators allow users to generate a portfolio based on real stock entries and help them
train with virtual currency. Most of the currently active financial simulators use a delayed data feed of
between 15 and 20 minutes to ensure that users cannot use their data to trade actively on a competing
system. Some simulators can produce random data to mimic price activity. The purpose behind such a
system is to let a person practice with fantasy funds in a real-world context so they can determine whether
or not they would gain money investing by them.

Stock market games:

Stock market games are speculative games that allow players to trade stocks, futures, or currency in a
virtual or simulated market environment. Stock market games exist in several forms but the basic
underlying concept is that these games allow players to gain experience or just entertainment by trading
stocks in a virtual world where there is no real risk. Some stock market games do not involve real money
in any way. Players compete with each other to see who can predict the direction the stock markets will
go next. Many stock market games are based on real life stocks from the Chicago Mercantile Exchange,
NASDAQ, and NYSE, AMEX or other major market indexes.

Stock market games are often used for educational purposes to teach potential stock traders and future
stock brokers how to trade stocks. Stock market games can also be used for entertainment purposes and to
engage in fantasy trading competitions.

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Portfolio strategy:

I am acting as a portfolio manager for my prospective clients and clients have gone me 1000000 to invest,
I am trying their money with making some strategy. As my prospective clients wants to high rate of return
and they are risk averse. I am investing money to those securities those are high return but low risk. I
know that I cant predict the future movement of security price but by analyzing the pattern of securities
price movement. I select those securities whose price fall slightly but rise notably. I hold some high price
securities and some low priced securities in my portfolio to diversify the adverse price movement of those
securities because I believe that if price of any securities will go down then the others will help to hold
my position in ranking. I am creating my portfolio by following the process:

Invest in selected securities of my preferred companys when the price of those securities go
down up to a certain level.
Sell my securities from my holding portfolio when price of a particular securities increase or
when price started to fall below a certain level.

Philosophy:

As market is efficient and prices reflect all relevant information, I am decided to follow the passive
management strategy. I am holding those securities that seem to offer the better investment opportunities.
I think I started with security analysis as my portfolio is constructed from the securities that seem
attractive price. I am also made preference list of companies whose securities I want to hold my portfolio.

Passive management strategy:

Passive portfolio management strategy refers to the financial investment strategy where an investor makes
an investment as per the fixed strategy that doesnt involve any forecasting. It stresses on minimizing the
investing fees and avoiding the unpleasant results of failing to correctly predict the future.

Which positions exceeded your expectations? What conditions caused

this?

Unfortunately for my poor knowledge and market exposures, I failed to reach my goal. My expectations
were least to receive a marginal profit for my clients.

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Position

My ultimate final position is 15TH

I was in 8TH in second day. After 2 days I was not playing game day to day so my rank falls 32th. My
expectation is not much high because I was in high losses. Gradually I know how to follow the strategy
my position upgraded. Though stock markets are risky, sometimes I bought which prices are raising. In
this gain was high. And returns also are high. Not Every day I always check my position. And buy and
sell shares. And thats why my position is no that much high.

Position underperformed:

In present position is underperformed me because my overall gain is less and share prices are remain less
and time limitation also be underperformed for me. Like VNC share prices are ups and down. IPs share
prices also fluctuating. Firstly I invest QHC and IP price was $3.35 and $55

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I was underperformed in the beginning in buying VSI 10000 shares and incurring loss $300, EXTN
20000 shares and incurring loss $600 and so on. I didnt buy huge share in one company. So that losses
on shares are not more than $10000. Last day of the simulation game I faced some losses because of
buying ABBU, DUK, BABA share. Many of the companys shares was underpriced. From BABA
$165.85 and sell $165.35. I didnt face massive losses. Though low prices of many shares I didnt earn
dollars.

There are some factors created performance gap:

1. Dont checking everyday stock prices.

2. Less confidence
3. Dont trading every day. Thats was biggest performance gap
4. Dont much care of shares volume
5. Proper information was not available
6. Less sincere.

Transactions History
I always invest different types of shares. Here are some of transactions

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 I made 102 transactions.

What are the key things you learned from your Virtual Stock Exchange
experience?
Virtual stock exchange is a really valuable place that all upcoming stock traders should consider visiting.
It gives a realistic version of things to be expected in the financial market. Some of the key lessons I
extracted from this financial endeavor are:

Patience
I have come to learn that this is the most important aspect when it comes to stock trading. Expecting
quick results is not the way to go and always leaves one in a hot mess. I can confidently say this because I
have personally experienced such a scenario that ultimately led me to making a poor trading decision. It is
therefore very important that one takes their time to pick the right investment opportunities regardless of
how long it might take to see any returns.

Perception
I have developed a keen eye for trends in the financial market. My anticipation of what might or might
not happen has tremendously improved hence aiding my decision-making abilities. It is paramount that
every financial trend in the market be carefully evaluated and monitored constantly before a final trading
decision is arrived at.

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Knowledge
Stock exchange is more of a dynamic rather than static trade. Due to this fact, it is advisable that you
constantly keep reading books on new financial strategies to ensure you do not end up being obsolete.
This will also refine your skills and tactics therefore boosting you to the frontlines of this competitive
field.

H OW WILL YOUR V IRTUAL S TOCK E XCHANGE EXPERIENCE

INFLUENCE YOUR PERSONAL INVESTING IN THE FUTURE ?

Actually it is a good question for me. Because in past days I dont understand in stock market. I know
stock market by reading my text book or course related book. But in real life if I dont know stock market
investment in practically it must be great obstacle for me. The virtual stock exchange is a great impact by
knowing stock market in real life. In future when I will invest in stock market it must be easier to capture
the market. And easily make profit. If I ever do stocks, I need to be a lot more cautious of what I buy.
And I need to do more research in the industries before I invest. I lost a lot of money in our game. I
learned that the money that you earn can quickly disappear but if you buy the right stocks it can also
increase greatly. It taught me to manage my money the right way.

If a new person play this game, he must be more practical by investing real life stock market so that I
think virtual stock market influence my personal investing in future.

Conclusion

Stock Market Games, It is the best way in which you invest money in fantasy stock market. In Stock
Market Games you simply invest your virtual money in stocks, mutual funds and bonds. In this type of
games you actually get to know about trading fully plus if you do good trading then there are full chances
that you will win prize that is announced in the end of the month. For beginners who are just stepping into
trading for them there is nothing better than these games which provide them platform to rise and learn
properly all about trading. The first and foremost question that comes to mind of one who start trading is
that where and how to invest money so that it wont get lost while trading in market. There are many
chances the one who start trading do not want stockbroker in that case the one started trading should get
whole knowledge of market and should invest only in those places where you find high chance of profit.
The second question that many beginners face is that they should get high investment or should continue

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with considerable amount of profit. Why virtual trading is essential? It is the place where you play with
stock market in virtual manner with virtual money by using actual data plus genuine rise and fall of stock.
In this you simply open virtual trading account where you perform trading just like stockbroker and
investor do in real trading market. Yes just like real market you will face profit and loss here also but that
all is virtual. People who are very serious about entering in the world trading should first try with Stock
Market Games. Why you should play virtual game? The one who actually wants to rise in trading should
surely play these games which will give them whole knowledge that how trading should be done. By
entering in world of virtual trading you can earn huge experience which you can implement while doing
real trading. By using Stock Market Games one can apply all his techniques and methods which he thinks
can provide high level of profit to them in case these methods actually provide you rise in profit then
these methods you can also apply in real trading. By investing in virtual games one can easily learn about
instability that usually happen in real market without investing any actual money. How it helps while
trading in real market? For the beginners it is great opportunity because with help of this you can simply
invest in many different ways. In Stock Market Games you are totally free to do any types of error
because you dont have any kind of risk of losing money in the end. One you feel that you are now self-
sufficient and you have gained all knowledge that is required for entering in real market then you can start
trading in real life.

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