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Does Undercapitalisation Help Explain Why Futures Speculators Lose Money?

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  • J A Anderson
  • R W Faff

Abstract

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

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  • J A Anderson & R W Faff, 2004. "Does Undercapitalisation Help Explain Why Futures Speculators Lose Money?," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 28(1), pages 45-56, April.
    • Handle: RePEc:taf:rseexx:v:28:y:2004:i:1:p:45-56
    DOI: 10.1080/10800379.2004.12106359
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