Does Undercapitalisation Help Explain Why Futures Speculators Lose Money?

This paper explores the role that capitalisation rates per futures contract may play in the success or failure of private traders. While a trader may believe that they have found some 'edge' in the market, this paper demonstrates that unless the trader has allocated sufficient capital to t...

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Bibliographic Details
Published in:Tydskrif vir studies in ekonomie en ekonometrie 2004-04, Vol.28 (1), p.45-56
Main Authors: Anderson, J A, Faff, R W
Format: Article
Language:English
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Summary:This paper explores the role that capitalisation rates per futures contract may play in the success or failure of private traders. While a trader may believe that they have found some 'edge' in the market, this paper demonstrates that unless the trader has allocated sufficient capital to the chosen trading strategy, then a complete loss of trading capital allocated to speculation may result - despite the trading strategy being inherently profitable. Moreover, for a given trading simulation experiment we identify estimates of the dollar value of capitalisation needed to remain viable
ISSN:0379-6205
2693-5198
DOI:10.1080/10800379.2004.12106359