n Studies in Economics and Econometrics - Does undercapitalisation help explain why futures speculators lose money?

Volume 28, Issue 1
  • ISSN : 0379-6205


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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