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Abstract

The focus of this study is the habitual speculator in commodity futures markets. The speculator's activity broadens a market, creates essential liquidity, and performs an irreplaceable pricing function. Working knowledge of the profiles and motivations of habitual speculators is essential to both market theorist and policy makers. Responses to a 73 question survey were collected directly from retail commodity brokers with offices in Alabama. Each questionnaire recorded information on an individual commodity client who had traded for an extended period of time. The typical trader studied is a married, white male, age 52. He is affluent and well educated. He is a self-employed business owner who can recover from financial setbacks. He is a politically right wing conservative involved in the political process. He assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler. This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run. He also worries more about missing a move in the market by being on the sidelines than about losing by being on the wrong side of a market move; i.e., being in the action is more important than the financial consequences. Participating brokers confirmed that for the majority of the speculators studied, the primary motivation for continuous trading is the recreational utility derived largely from having a market position.

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