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Constant-collateral pyramiding trading strategies in futures markets

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  • Stan Miles

Abstract

This paper introduces constant-collateral pyramiding trading strategies, which can be implemented in the futures markets. For these strategies, expressions are derived for effective constraints on the number of futures contracts in the trader’s portfolio and on the trader’s wealth. Implications of the results are drawn regarding the degree of pyramiding adopted by a subgroup of noise traders who underestimate the probability of receiving a margin call when they engage in positive feedback strategies. Suggestions are made regarding how market regulators can use margin requirements to encourage these traders to adopt less aggressive pyramiding strategies. Copyright Swiss Society for Financial Market Research 2013

Suggested Citation

  • Stan Miles, 2013. "Constant-collateral pyramiding trading strategies in futures markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(4), pages 381-396, December.
    • Handle: RePEc:kap:fmktpm:v:27:y:2013:i:4:p:381-396
    DOI: 10.1007/s11408-013-0216-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Noise trading; Feedback trading; Margin-setting methodology; Constant-collateral pyramiding trading strategies; G11; G18;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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