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SIMULATIONS

Market maker - Competition

Market maker - Competition

Practice market making in a competitive market

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Simulation Market maker - Competition   SC_EZP2_US_V5

Simulation scenario

In this simulation you will practice the market making activity in a competitive market. If this market activity is profitable, you may not be the only one to be willing to exploit it. You will participate to the financial market where the stocks of the EasyPlane firm have been issued (ticker symbol: EZP).

Your goal is to maximize your trading gain.

At the start of the simulation, you own an account worth  50,000 in cash and 5 000 EasyPlane shares.

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

You can relaunch the simulation as many times as you wish.

Grading

Your grade for this simulation (25 points) takes into account 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).

EasyPlane company

EasyPlane is a low cost airline company. Founded at the beginning of 2010, EasyPlane mainly serves big European capitals with some flights towards the United States and Asia as well.

As its name suggests, EasyPlanes goal was to make it easy for passengers to take a flight. For this, EasyPlane uses new technologies to automate all the process: from ticket purchase (website and mobile app) via boarding (triple recognition of the person based on fingerprints, face and voice, visual and sensory scanning of the luggage) up until the actual flight (online ordering of drinks or meals and service provided by robots). Even the airplane is piloted remotely with an expert system helping the only pilot in the cabin.

For the firm, this innovative approach allowed to have much lower operating costs compared to those faced by the competitors still improving passengers safety. This approach attracted very much the generation Z formed by young people who were born in the era of new technologies, always connected and who do not have the time to lose their time.

Evolution of the stock price

Privately held for a long time and very well valued by the funds that believed in this project from the beginning, the unicorn EasyPlane publicly entered the market only two years ago. The stock price took off phenomenally right after the quotation: started off with a price equal to 45, some months afterwards the stock price got already multiplied by 5! In order to make the price more attractive for the investors, recently the firm had to divide by 20 the value of its stocks (stock split).

EasyPlane is followed by around 15 financial analysts. In particular, market participants are very much looking forward to the recommendations coming from Marina Boat and Douglas Flint, and their recommendations (not always concordant) often have a significant impact on the price of EZP stocks.

Since several weeks, the stock price of EZP has experienced some ups and downs, and ranges around  10.

The ticker symbol of EasyPlane is EZP.

What will happen today...

Today, the stock price of EasyPlane should evolve according to the information flow arriving to the market (news flow) and to the demand for the stock.

Today it may be a particularly calm day: no expected diffusion of economic indicators, no scheduled announcement from the firm... but who knows?


What you are going to learn

The simulation Market maker - Competition allows to discover the conditions of the market making activity as well as its relevance for the market.

Teaching objectives: The simulation Market maker - Competition will be the opportunity to understand the factors of the market making. In which market conditions is market making profitable? What is the social utility of market making? What are the risks associated to market making?

Learning goals: this simulation will allow you to understand in practice the following features of trading:

  • Define a market making strategy
  • Evaluate market liquidity
  • Manage dynamically your market making activity

After or during this simulation, you can learn more on market making by following the associated courses to this simulation.

Download the case note to help you during the smulation.

About the author of the simulation

Professor Franois Longin
ESSEC Business School

« Market making activity improves market liquidity. »