Ship Investor 3: Futures Edition

Warning

This game is complicated and maybe even hard. It is not in the same league as the previous games. You can make a steady profit in this game, but you have to figure out what things are important and know what you are looking for.

History

The year is 1881, and 100 years have passed since Ship Investor 2. You are the grandchild of a rich person, and you want to put your wealth to use. You have put everything into the Gibraltar fund which delivers an annual risk-free interest rate of around 1 % nowadays. But you want more.

You decide to try your hand at this new invention called futures contracts. You enter the pits of the Chicago Board of Trade.

Contracts

Underlying asset: Goods shipped along the Malacca route.
Grades: Class 2 are raw goods, class 1 are refined goods.
Contract lot: 5,000 shipped goods.
Tick size: 25 cent per shipped good ($1,250 per contract.)
Point value: $5,000.
Marked to market: Monthly.
Margin/maintenance: $0/$0.
Settled by: Forced physical delivery.

This applies to the futures contracts. The cash market works as you would expect: you buy and sell individual goods at the price quoted.

Economics

The contract prices are affected by some fundamentals. Obviously, the current cash price and the time to expiration matters. Another important factor is the cost of storing goods (facility rent and insurance.) If the cost of storage is high, then contracts further out will be more expensive. Except sometimes the storage cost is negative (due to convenience yield) and contracts further out will be cheaper. (This situation is known as backwardation.)

A tricky factor that must also be considered is the risk-free interest rate: any money you have in the bank will grow at a slow but safe rate. Contracts are generally priced so that they are competitive with this risk-free interest rate.

If you own any goods, you will have to pay the storage cost. If you borrow goods, you have to pay interest on them. These numbers (like the risk-free interest rate) are somewhat stable but vary randomly with time.

Interface

The table of contracts has an input box where you type how many of each thing you want to own. The cash market and the futures market work slightly differently.

Cash Market

When you type in a positive amount you set how many goods you want to own. If the number was bigger than the number that was there before, you are buying the difference in the cash market. You will see the money in your bank decrease correspondingly. If the number is smaller than what was there before, you're selling the difference and the money in your bank will increase.

When you type in a negative number, you are borrowing and immediately selling that many goods. You will see the money in your bank increase (revenue from your sales), but the negative number you typed in will serve as a reminder that you are have an ongoing loan and you are paying interest on that many goods.

One way to repay the loan in full is to simply make the number in the box 0. That means you buy the corresponding number of goods in the cash market and hand them over to the one you borrowed them from.

Futures Market

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Introduction to Futures

There are no margin payments, because physical delivery is forced. This means when a contract expires, your balance in the spot market will automatically be updated with the contract lot.

Beware that this means that if you have sold a contract and not offset it by its expiration, and you own no physical goods to deliver, you will automatically take a loan of the corresponding number of goods and deliver those.

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