Your broker is trying to sell you a trading strategy which trades the FTSE 100 future. The broker has provided a backtest but this assumes that all orders are executed at the mid price, and you are trying to determine a realistic level of trading costs. Your broker charges 1 per contract in commission to trade (on both buys and sells); but if you buy or sell at least 5,000 contracts per day they will reduce the commission to 0.10 per contract. The average daily volume of the FTSE contract is 100,000 contracts. Each 1 point move in the future is worth 10 (i.e. from 6300 to 6301 would make you 10 from a long position). This is the current state of the order book for the September 2021 contract: Bids: 10 contracts @ 6,339.0 Offers: 10 contracts @ 6,339.5 a. Calculate the daily cost of trading 50 contracts every day, assuming that each order is for less than 10 contracts (5 marks] b. Your broker claims that it will cost 2.60 per contract to trade 10,000 contracts per day. They also assert that the strategy will earn 5 per contract, every single day, even after paying these costs. Show how the broker calculated the figure of 2.60. Do you think the broker's claims are realistic? Explain your answer. [6 marks] c. The carry strategy is a mean reversion strategy, as a break-even price level can be calculated where the carry is zero. Above this level you would want to sell the FTSE, and below it you would wish to buy. The broker suggests that you place stop loss orders at levels away from the break- even. How would this affect your expectations of trading costs, assuming you were trading 50 contracts per day? Explain your answer. [6 marks] The order book shown in (a) is for the September 2021 future. The June 2021 future has the following order book: Bids: 10 contracts @ 6,303 Offers: 10 contracts @ 6,303.5 d. Would the carry strategy be long or short the September 2021 future? Explain your answer. [3 marks]