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Trader Survival: Evidence from the Energy Futures Markets

Authors

  • Naomi E. Boyd,

    1. Naomi Boyd is an Assistant Professor of Finance at the Department of Finance, West Virginia University, Morgantown, West Virginia. She is also a Consultant, Office of the Chief Economist, Commodity Futures Trading Commission (CFTC), Washington, DC.
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  • Alexander Kurov

    Corresponding author
    • Alexander Kurov is an Associate Professor of Finance at the Department of Finance, West Virginia University, Morgantown, West Virginia.
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  • We thank Jonathan Boyd, Al Carrion, James Corley, Dennis Lasser, Jeffrey Harris, June Harding, Dan McKeever, Costanza Meneghetti, Kirsten Soneson, seminar participants at the 2010 Eastern Finance Association Meetings and the 2010 Meetings of the Financial Management Association, and an anonymous referee for helpful comments and suggestions. Errors or omissions are our responsibility.

  • She is also a Consultant, Office of the Chief Economist, Commodity Futures Trading Commission (CFTC), Washington, DC.

Department of Finance, College of Business and Economics, West Virginia University, P.O. Box 6025, Morgantown, West Virginia 26506

Abstract

This study analyzes the adaptation of traders and the determinants of trader survival during a period of changing market structures. Our unique sample of transactions level data covers the introduction of electronic trading in the NYMEX energy futures market. The results show that most floor traders adapted to the side-by-side electronic and open outcry trading, although trader attrition increased and the profitability of surviving traders declined dramatically. It is also found that trading profits, trader experience and sophistication, and dual trading have a positive effect on the probability of trader survival. Scalpers are less likely to exit trading in pure open outcry trading, but are more likely to fail than traders who hold open positions longer in side-by-side trading. Finally, traders trading in multiple energy futures markets and those who use both the exchange floor and electronic trading appear to have a survival advantage in side-by-side trading. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:809–836, 2012

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