Does Undercapitalisation Help Explain Why Futures Speculators Lose Money?

J A Anderson and Robert Faff

Studies in Economics and Econometrics, 2004, vol. 28, issue 1, 45-56

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

Date: 2004
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DOI: 10.1080/10800379.2004.12106359

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