John Kemp (Reuters): Why do most commodity traders lose money?

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John Kemp (Reuters): Why do most commodity traders lose money?


There are very few studies of the trading behaviour and performance of contemporary commodity traders. Trading remains shrouded in secrecy.


But just after the war, the U.S. Commodity Exchange Authority (forerunner of the CFTC) produced a study looking at the strategy and performance of nearly 9,000 traders in grain futures over a 9-year period from 1924 to 1932 inclusive.


The study is based on trading records from one of the largest brokerages in the Chicago area. The study contains case studies of two customers who traded frequently in large volumes (one of them very profitably and one making massive losses).


It also contains a detailed statistical analysis of the trading patterns and results of all 9,000 traders (using a stock of a million punch cards left over by the Agricultural Adjustment Administration).


An Analysis of Speculative Trading in Grain Futures (1949) is strongly recommended.


The study is old and focuses on agricultural products rather than energy but some of the issues likely apply to modern oil and gas trading. If you don’t have the luxury of several hours, there is a handy summary on pages 129-131. But if you have time the whole thing repays reading. You might even pick up some tips on how to trade more effectively.