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SIMULATIONS

Efficient market

Efficient market

Experience market efficiency!

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Simulation Efficient market   SC_BDF5A_US_V6

Scenario of the simulation

At the start of the simulation, you own an account worth 100,000 in cash and 1,000 Bl de France shares. As a SimTrader, your goal in this simulation is to maximize your trading gains.

In this simulation, you can send all types of orders to the market: market orders (MKT), limit orders (LMT), best limit orders (BL), stop orders (STP) and stop limit orders (STL).

The duration of the simulation is initially set to 10 minutes, which corresponds to a 24-hour trading day. Using the timeline, you can increase or decrease the simulation speed at any time.

Grading

Your grade for this simulation (100 points) takes into account the following elements:

  • Your trading performance (60 points): your relative performance, that is to say the difference between your gain/loss on your position with your intervention during the simulation and the gain/loss without your intervention (as if you haven't send any order)

  • Your trading activity (25 points): the launching of the simulation (5 points), your determination to go to the end of the simulation (10 points) and the sending of at least one order to the market (10 points)

  • Your grade in the MCQ test at the end of simulaton (15 points): 3 questions about the simulation (5 points by question).

Bl de France firm

Bl de France is a French wheat producer. The firm was created in 1780 by the Turgot de la Beauce brothers, nephews of the famous financial controller of the King of France Louis XVI. The firm is still managed by a descendant of the founders, Charles-Louis Turgot de la Beauce, who is an emblem of the cereal industry in France.

Bl de France fields are mainly located in the Beauce area in the center of France.

The sales structure is composed of two parts:

  • Long-term contracts: commitment to sell to food-processing firms fixed quantities of wheat (total of 5 million tonnes per year) at a fixed price (average price of €300 per tonne) for several years

  • Sale of the rest of the production on the international wheat market at the market price.

Evolution of the stock price

The ticker symbol for Bl de France shares traded on the market is BDF.

Bl de France was introduced in the French stock market in the 1970s. During the past few years, its stock price soared. This strong price increase can be partly explained by the strong increase in the wheat prices at the world level.

Over the recent period, the BDF stock price has fluctuated around €120. The market price has evolved according to the news flow about the company and the wheat market.

What will happen today...

Today should be a day rich in events for the company Blé de France. In the morning, Charles-Louis Turgot de la Beauce (Blé de France CEO) participates to a meeting with financial analysts. He will announce the profit of the company for the last quarter. The market consensus is €120 m for Blé de France profit.

Read the market consensus for Blé de France

Like other companies in the sector, Bl de France faces three risks for its business:

  • A quantity risk: the quantity harvested each year is not known in advance.

  • A quality risk: the quality of the harvested wheat is not known in advance.

  • A price risk: for the part of the wheat production sold on the international market, the selling price is not known in advance.

These three risks are largely influenced by the weather, both in France for the first two risks (quantity and quality of the harvest) and globally for the third risk (wheat price on the international market).

Read the note on the price of wheat

What is the firm going to announce? How will the market react to the news? Will the market be efficient or inefficient in processing information? And especially how will you react? Those are the questions...

What you will learn...

The simulation Efficient market deals with the firm valuation by financial markets. How is a firm valued? How is the value of the firm reflected into the stock price? This simulation looks at a key concept in finance: earnings per share.

Teaching goals: the simulation will be the opportunity to understand deeper how the market reacts to information. Is a new piece of information rapidly or slowly incorporated into market prices? In other words is the market efficient or inefficient?

Learning objectives: this simulation will help you to learn the following elements of finance:

  • Evaluate a firm

  • Implement a trading strategy based on your own firm valuation

  • Evaluate the degree of market efficiency.

Before or after launching this simulation, you can learn more on information in financial markets by taking related courses to the simulation.

Download the case note to help you during the simulation.

About the authors of the simulation

Gabriel Eschbach
ACE Finance & Conseil

« The key is knowing how to process information. The market is anticipating what will happen, but things never happen as expected. The market reacts to the rumor and adjusts to the news. And you! What do you expect? How will you react? What are you going to do? »

Professor Franois Longin
ESSEC Business School

« Before starting the simulation, remember that the market is always right; and that the market is always right even when it is wrong... »