Python Variable Basics

Python has become an indispensable tool in the world of finance and trading, offering a powerful yet user-friendly platform for data analysis, algorithmic trading, and financial modeling. This blog post aims to introduce beginners to the core concepts of Python, focusing on topics especially relevant to finance and trading.

The Python Interpreter

The Python interpreter is your gateway to running Python code. It reads and executes your Python scripts line by line, providing immediate feedback and results. You can interact with the interpreter through the command line or use an Integrated Development Environment (IDE) like Jupyter Notebooks, which is particularly popular in data science and finance for its mix of code, output, and documentation.

Variables and Naming Rules

Variables in Python are like labels for data. They help you store and refer to values in your code.

• Naming Rules: Variable names should start with a letter or an underscore and can be followed by letters, digits, or underscores. They are case-sensitive (price, Price, and PRICE are different variables).

• Best Practices: Use descriptive names (closing_price, volume_traded) so your code is readable and maintainable. In finance, clear variable names are crucial for understanding the financial data or operation the variable represents.

# Good practice for variable naming
stock_price_today = 300
stock_price_yesterday = 295

Data Types: Integers and Floats

In financial calculations, you often deal with whole numbers (like the number of shares) and decimals (like stock prices). Python has two main numerical data types for these:

• Integers (int): For whole numbers. E.g., shares = 100.

• Floats (float): For decimal numbers. E.g., price_per_share = 31.50.

Python automatically determines the type based on the value you assign to a variable.

shares = 100  # This is an integer
price_per_share = 31.50  # This is a float

Mathematical Operators and PEMDAS

Mathematical operators in Python are used for performing arithmetic operations and are essential for any numerical computation, including those in finance and trading. Here's a detailed explanation of each operator:

1. Addition (+)

The + operator adds two numbers together.

Example:

result = 10 + 5  # result is 15

2. Subtraction (-)

The - operator subtracts the right-hand operand from the left-hand operand.

Example:

result = 10 - 5  # result is 5

3. Multiplication (*)

The * operator multiplies two numbers.

Example:

result = 10 * 5  # result is 50

4. Division (/)

The / operator divides the left-hand operand by the right-hand operand. It always returns a float, even if the division is even.

Example:

result = 10 / 5  # result is 2.0

5. Floor Division (//)

The // operator performs division but discards the remainder, effectively rounding down to the nearest whole number.

Example:

result = 10 // 3  # result is 3

6. Modulus (%)

The % operator returns the remainder of a division.

Example:

remainder = 10 % 3  # remainder is 1

This can be particularly useful in financial contexts where you need to calculate payments or distributions that involve dividing a sum into parts.

7. Exponentiation (**)

The ** operator raises the left-hand operand to the power of the right-hand operand.

Example:

result = 2 ** 3  # result is 8 (2*2*2)

The PEMDAS rule, often remembered by the phrase "Please Excuse My Dear Aunt Sally," is a mnemonic that represents the order of operations used in mathematics and programming languages like Python to solve expressions involving multiple arithmetic operations. Here's a breakdown of PEMDAS:

1. Parentheses ()

2. Exponents **

3. Multiplication * and Division / (from left to right)

4. Addition + and Subtraction - (from left to right)

Details of PEMDAS:

1. Parentheses ():

• Operations enclosed in parentheses are performed first. If there are nested parentheses, the operation in the innermost parentheses is calculated first.

• It's not just about prioritizing operations; parentheses also clarify the order and grouping of operations in complex expressions.

Example:

result = (2 + 3) * (15 - 3)
# Calculated as (5) * (12) = 60

2. Exponents **:

• After parentheses, exponentiation is performed next.

• In expressions with multiple exponents, Python evaluates them from right to left (which is a bit of an exception to the left-to-right rule).

Example:

result = 2 ** 3 ** 2  # Same as 2 ** (3 ** 2) = 2 ** 9 = 512

3. Multiplication * and Division /:

• These operations are performed next, and they have the same precedence.

• When a calculation involves both multiplication and division, the operations are performed from left to right.

Example:

result = 10 / 2 * 3  # Calculated as (10 / 2) * 3 = 5 * 3 = 15

4. Addition + and Subtraction -:

• Lastly, addition and subtraction are performed.

• Like multiplication and division, if both addition and subtraction appear in the same expression, they are performed from left to right.

Example:

result = 10 - 2 + 3  # Calculated as (10 - 2) + 3 = 8 + 3 = 11

Important Note:

While PEMDAS sets a standard order of operations, it's crucial to use parentheses for clarity, especially in complex expressions. This ensures that anyone reading your code (including yourself at a later time) can easily understand the intended order of operations, reducing the potential for errors.

Here's a comprehensive example that combines all PEMDAS rules:

result = (2 + 3) * (15 - 3) / 3 ** 2 + 5 - 1
# Parentheses: (2+3) and (15-3) => 5 * 12 / 3 ** 2 + 5 - 1
# Exponents: 3 ** 2 => 5 * 12 / 9 + 5 - 1
# Multiplication and Division (left to right): (5 * 12) / 9 + 5 - 1 => 60 / 9 + 5 - 1
# Addition and Subtraction (left to right): (60 / 9) + 5 - 1 => 6.67 + 5 - 1
# Final result = 10.67

Understanding and applying the PEMDAS rule is essential in programming, ensuring that complex arithmetic expressions are correctly interpreted and calculated.

Financial Problem: Calculating Simple Returns

Let's apply what we've learned to calculate the simple return of a stock investment.

Simple Return Formula: ((\frac{\text{Ending Price} - \text{Starting Price}}{\text{Starting Price}}) \times 100%)

# Variables for stock prices
starting_price = 50
ending_price = 55

# Calculating simple return
simple_return = ((ending_price - starting_price) / starting_price) * 100

print(f"The simple return of the stock is {simple_return} %")

Output: The simple return of the stock is 10.0 %

Conclusion

Understanding these fundamental concepts of Python is crucial as you delve into more complex financial analyses and trading algorithms. Remember, clarity and precision in your code are paramount, especially when dealing with financial data. Happy coding, and may your journey into Python for finance and trading be both profitable and enlightening!