hello dax

FUTURES, THE MARKET AND ITS PARTICIPANTS (III): A COMPARISON

Future markets are generally considered as zero-sum games. A zero-sum game is a game in which the net return of all players, eg. investors or traders in total equals just zero. This means that when somebody loses, somebody else makes a profit so that in average in the long run losses equals profits. This does not mean that nobody can win on average, what it means is that at future markets a (huge) redistribution of money takes place. Who wins in this game?

It is considered, though, that some groups of players on average lose and some groups of players structurally win. Numerous researches confirm this see eg. L. Harris, Winners and Losers of the Zero-Sum Game . This result is not only restricted to future but also to stockmarkets and valutamarkets (FOREX).

The Commodity Futures Trading Commission (CFTC) , which publishes weekly reports containing details of holdings for market-segments containing data on open interest for commercial and non-commercial market participants (Commitments-Of-Traders'-Report, COT-Report or simply COTR).

The CFTC segregates the various groups operating at the markets into several categories.

• One contains so-called large "commercial" traders, the hedgers.


• The second contains so called large "non-commercial" traders - large speculators, in other words.


• A final category contains all those that don't fit into the other two categories, presumably small speculators, the public traders.

For EUREX products (FDAX, EUROSTOXX50, GBL) these data are not available but only product or product group are collected. How do these groups perform in comparison?

The CXO Advisary group, a small market research and publishing company that summarizes research that is relevant to investing, gathered some historical performances of these groups on the S&P 500. Some of their findings are:

• that the non-reportable small speculators (the "public") tend to take the opposite side of the positions of the commercial traders



• and more importantly the commercial traders leaning right and the public leaning wrong, when having futures positions.



• Also, it appears that small players suffer bear markets more than they enjoy bull markets.

These findings are found over and over again: small traders (public) lose money to big professional traders on average. This doesn't withold these kind of traders from the markets: in contrary. Small traders are in fact operating more and more on the markets despite their probable failure as a group, a phenomene that has been investigated by Dorfmeister for the EUREX Future markets.

He considered the fact that various groups on the market have different motives and time horizons when trading and he used daily open interest and volume data to calculate average holding period of the various future products traded on the EUREX which are the FDAX, EUROSTOXX50, Euro-Bond (FGBL), Euro-Bobl (FGBM), Euro-Schatz((FGBS) and EURIBOR. Data sampling is done since the opening of the respective future contracts eg. for the FDAX since 1999. He found and concluded that:

• The Eurex gives home to some futures (namely the FDAX, the FGBL, the FGBM, and
  the FGBS) which reveal very short-termed trading behavior of market participants.



• Within their investigation period they could observe a tendency to even more short-term
  behavior in all futures.



• This means that possibly there are huge masses of day traders in these futures.

Off course there are more parties involved with trading: brokers, datavendors, market makers, arbitrageurs, regulators, market organisers and so on, all with different motives and goals, 'many mouths eating from the market'. Paolo Pezzutti recommends Market Microstructure for Practitioners , a book about products, market participants, regulations and market organisations