Academic journal article Journal of Financial Education

Incorporating a Real-Time FX Trading Platform in an International Business Finance Class

Academic journal article Journal of Financial Education

Incorporating a Real-Time FX Trading Platform in an International Business Finance Class

Article excerpt

Recent advances in computer technology and internet speed have opened up new teaching possibilities for the International Business Finance (IBF) course. An entire class of IBF students can now engage in real-time, real- world, round-the-clock leveraged trading of foreign exchange, using a free platform identical to one used by actual real-money FX traders. This paper describes the platform, shows how to integrate this technology in an IBF course, and presents regression evidence that suggests that student learning is enhanced.

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INTRODUCTION

Every undergraduate International Business Finance (IBF) course exposes students to the business risks of currency volatility, and the methods available to hedge against it. Yet graphs in textbooks and classroom lectures, and classroom exercises and simulations [Asciolglu, Asli and Kugele 2005; Root, Thomas, and Lien, 2005] cannot fully convey the sharpness and range of minute-by-minute exchange-rate fluctuations among all of the floating currencies of the post-Bretton Woods era. Exposing students to a full-fledged trading room [Coe, Kilic and Isik, 2007] is prohibitively expensive. However, recent advances in computer technology and internet speed have opened new teaching possibilities, as documented by Holowczak [2007], who combined real-time data with spreadsheets. But now an entire class of IBF students can engage in real-time, real-world, round-the-clock leveraged trading of foreign exchange, using a platform identical to one used by actual real-money FX traders. And the monetary cost is essentially zero.

This paper shows how this technology can be harnessed to improve student learning. The first section of the paper explains how the platform works and describes the rich and continuous flow of data available to each student and faculty trader. The next section describes a few of the numerous pedagogical benefits, both inside and outside of a "smart" classroom. The following section explains in detail how an instructor can integrate the trading platform into atypical undergraduate IBF class, using writing assignments and contests. The next section describes a simple regression analysis to test if this trading platform improves student learning outcomes. The final section has conclusions.

THE O ANDA FX TRADING PLATFORM

OANDA (www.oanda.com) was created by Dr. Michael Stumm, a computer engineer at the University of Toronto, and Dr. Richard Olsen, a consultant and co- author of a textbook on high-frequency finance [Dacorogna, Gen?ay, M?ller, Olsen, and Pictet, 2001], OANDA is one of the leading firms in retail FX trading, with a state-of-the-art trading platform which works with all major browsers and operating systems. OANDA requires a recent version of Java that is available for free download on the internet.

OANDA is superior to other FX trading platforms. For example, Forex.com (www.forex.com) does not have a mechanism to set up a class contest, which is a vital part of the learning experience (see below). OANDA is also superior to trading platforms such as Stock-Trak (www.stocktrak.com). Stock-Trak only allows users to trade a small number of currency futures, with significant delays in trade execution and reporting. OANDA is also a better choice than Stock-Trak because it does not assess any student registration fees. A full review of these and many other online trading platforms, which are mainly for stocks, is in Jankowski and Shank [2010],

It takes less than five minutes to set up an "FXTrade Practice" account with OANDA. All accounts are then seeded with an initial $100,000, with default leverage of 20:1. After logging in to his or her account, a user sees the main page of the OANDA platform, which looks like Figure 1.

It is possible for a student to begin trading immediately, although, as discussed in a later section, some initial in-class and online training is strongly recommended. …

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