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The Stock-Trak Simulation Program


            On February 11, 2014, the Stock-Trak simulation program began and my role was to be a commodity trading advisor (CTA). I got a total available amount of $1,000,000 from the commodity pool operator for investing. The money I received could only be used for trading commodity futures and commodity future options. My goal of this simulation program was trying to increase the value of the portfolio with minimizing the risk before May 1st, 2014, which is the last trading day.
             In order to achieve my goal, I had two basic strategies that I felt would help me to be successful. The two strategies are, not diversifying the portfolio, and trading the substituted commodities. Unlike the stock trading, I did not want to diversify my portfolio even though almost all the textbooks state that "diversification is a way to reduce the investment risk." There are two main reasons that made me not to diversify my portfolio. First diversification is very time consuming. I had to spend a lot of time to do research and gather information if I was involved in many different industries.
             Secondly, diversification can bring negative influence to my best ideas. I could not get the greatest return from my best idea if I divided my money equally among all my investment. I preferred to trade the substituted commodities. It is also called "pair trading"." It is a market neutral trading strategy. I could use the historical data of two substituted commodities to find the correlation between them. Substituted commodities are often negatively correlated, which means the price of one commodity moves down while the other moves up. As a result, I can minimize my potential loss. Based on this strategy, I decided to go long for gold and silver because they were substituted to each other, and historical data told me that the price of these two commodities rarely falls. .
             The actual result also supported my thoughts since I made about $20,000 as profit on these two commodities.


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