Trading on the Iowa Electronic Markets Introduction

Introduction l The IEM is an on-line futures market l Payoffs are based on real-world events such as: –political outcomes –companies' earnings per share (EPS) –stock price returns l Operated by University of Iowa Henry B. Tippie College of Business faculty as an educational and research project

Agenda l Signing up for an IEM account l Connecting to the IEM l Navigating in the IEM l Trading with the IEM l Getting Account Information l Getting Market Information

Signing Up for an IEM Account l Start at l Follow instructions provided in class –Warning: use only forms that you were instructed to use. –Using the wrong forms may result in additional fees

Connecting to the IEM l Connect using a web browser –Internet browsers are Microsoft Internet Explorer, Netscape, AOL, etc. l Web address: –

Logging Into the IEM l Address: – –Select the “login and trade” link. l Logging into the Practice Markets –Trader ID: aaa, bbb, ccc, … –Password: aaa, bbb, ccc, … l Logging into your own account: –Use Trader ID and password received from the IEM –For security, CHANGE YOUR PASSWORD the first time you login! l Logging out –REMEMBER to log out for security reasons!

Using the IEM l Trading screen divided into three sections –Market Window l shows current market status –Trading Console l where you enter your orders –Navigation Bar l to move around between markets or generate reports

The IEM Screen

The WebEx Market Window

The Market Window l Top panel of your screen l Shows –current market information –your holdings in cash and assets –your outstanding orders

The WebEx Navigation Bar

l Bottom panel of your screen l 5 buttons: –"Go To Market" Button –"Market Info" Button –"My Account" Button –"Help" Button –"Logout" Button

Trading in the IEM l Trading Rights –All traders can trade in political markets –Only academic traders can trade other markets l Markets and the Objects Traded –IEM contains many markets l Each market is related to some future event –Assets are the objects traded in the market l The future event determines how assets in the market will payoff

Trading in the IEM l Three ways to buy and sell assets –Market Orders –Limit Orders –Bundle transactions

Market Order: Definition l Request to buy or sell an asset at the current ask and bid price l Consists of: –Instruction to buy or sell –Asset ticker symbol –Quantity you wish to trade

Placing a Market Order l Use the market order menu l Choose the asset you wish to buy or sell from the Action/Asset select list l Specify the quantity l Click on the Market Order button

Market Orders in WebExchange

Limit Order: Definition l A request to buy or sell an asset at a specified price for a specified period of time l Consists of: –an instruction to buy or sell –an asset ticker symbol –the quantity you wish to trade –a price at which you are willing to trade –an expiration date and time after which the order will not be traded

Placing a Limit Order l Use the limit order menu l Choose the asset you wish to buy or sell from the Action/Asset List l Specify –price –quantity –expiration date and time l Click on the Limit Order button

Limit Orders in WebExchange

Buying and Selling Bundles l A bundle –is a set of assets which can be purchased from or sold to the exchange at a fixed price –This fixed price is the guaranteed aggregate liquidation value of the assets –Processed as market orders in IEM

Withdrawing Orders l You can withdraw any of your bid and ask orders as long as they have not traded or expired. l To withdraw an order –Access the market in which the order was placed. –Click on the bid or ask hypertext to the right of the appropriate asset –Find the order you wish to withdraw and click on the word delete to the right of the order –Once an order is deleted it cannot be retrieved

Order Queues l Limit Orders are maintained in queues l Orders are listed in these queues in priority order. –Bid orders with higher prices have higher priority than orders with lower prices. –Ask orders with lower prices have higher priority than orders with higher prices. –Within a particular price, older orders (orders that were placed sooner) have higher priority than newer orders.

Other Aspects of Trading l Short Sales and Margins –You cannot sell short or buy on margin –Feasibility Checks l Self Trades –You cannot trade with yourself l Spinoffs and Splits –The IEM governors can declare asset spinoffs and splits l Asset Liquidations by the Exchange –The liquidation formula describes how and when assets will payoff –Once assets are liquidated, they can no longer be traded

Other Aspects of Trading l Short Sales and Margins –You cannot sell short or buy on margin –Feasibility Checks l Self Trades –You cannot trade with yourself l Spinoffs and Splits –The IEM governors can declare asset spinoffs and splits l Asset Liquidations by the Exchange –The liquidation formula describes how and when assets will payoff –Once assets are liquidated, they can no longer be traded

Other Aspects of Trading l Short Sales and Margins –You cannot sell short or buy on margin –Feasibility Checks l Self Trades –You cannot trade with yourself l Spinoffs and Splits –The IEM governors can declare asset spinoffs and splits l Asset Liquidations by the Exchange –The liquidation formula describes how and when assets will payoff –Once assets are liquidated, they can no longer be traded

Reports About Your Account l Trades Report l Outstanding Asks Report l Outstanding Bids Report l Orders and Order Resolution Report l Portfolio Report l Liquidation Report

Reports About Your Account l Trades Report l Outstanding Asks Report l Outstanding Bids Report l Orders and Order Resolution Report l Portfolio Report l Liquidation Report

Reports About Your Account l Trades Report l Outstanding Asks Report l Outstanding Bids Report l Orders and Order Resolution Report l Portfolio Report l Liquidation Report

Reports About Your Account l Trades Report l Outstanding Asks Report l Outstanding Bids Report l Orders and Order Resolution Report l Portfolio Report l Liquidation Report

Reports About the Market l Price History –Daily contract volumes, dollar volumes, high prices, low prices, average prices and closing prices l Current Quotes –Best bids, best asks and last trade prices l Prospectus –READ IT BEFORE TRADING!

Reports About the Market l Price History –Daily contract volumes, dollar volumes, high prices, low prices, average prices and closing prices l Current Quotes –Best bids, best asks and last trade prices l Prospectus –READ IT BEFORE TRADING!