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Article

Which Types of Traders and Orders Profit from Futures Market Trading?

Chun-Nan Chen, Carl R. Chen and Ying Sophie Huang
The Journal of Derivatives Summer 2014, 21 (4) 49-62; DOI: https://doi.org/10.3905/jod.2014.21.4.049
Chun-Nan Chen
is an associate professor of finance at the Graduate Institute of Finance, National Taiwan University of Science and Technology, in Taipei, Taiwan.
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  • For correspondence: chunnan@mail.ntust.edu.tw
Carl R. Chen
is William J. Hoben Professor of Finance in the Department of Economics and Finance at the University of Dayton in Dayton, OH.
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  • For correspondence: rchen1@udayton.edu
Ying Sophie Huang
is a professor of finance in the College of Economics & Academy of Financial Research, Zhejiang University, in Hangzhou, China.
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  • For correspondence: sophiehuangying@zju.edu.cn
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Abstract

The Taiwan futures exchange, which trades contracts on the TAIEX stock index, collects extensive data on each trade, including the particular type of trader (a proprietary futures trading firm, a domestic institutional investor, a foreign institutional investor, or an individual) along with the price, quantity, trade time, and whether it was a market order or limit order. The authors investigate the data for trading from 2006–2008. They categorize limit orders as aggressive (limit price above the current quote midpoint) or passive. Tests on overall profitability show that individual traders lose money to the other groups, which are all profitable. Institutional traders use more aggressive limit and market orders than passive orders, and the resulting trades are more profitable than those initiated by passive limit orders. They find greater use of aggressive order types at the beginning of the trading day by institutional traders, which is consistent with theories of optimal trading strategy for informed investors.

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The Journal of Derivatives: 21 (4)
The Journal of Derivatives
Vol. 21, Issue 4
Summer 2014
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Which Types of Traders and Orders Profit from Futures Market Trading?
Chun-Nan Chen, Carl R. Chen, Ying Sophie Huang
The Journal of Derivatives May 2014, 21 (4) 49-62; DOI: 10.3905/jod.2014.21.4.049

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Which Types of Traders and Orders Profit from Futures Market Trading?
Chun-Nan Chen, Carl R. Chen, Ying Sophie Huang
The Journal of Derivatives May 2014, 21 (4) 49-62; DOI: 10.3905/jod.2014.21.4.049
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  • Article
    • Abstract
    • INSTITUTIONAL BACKGROUND FOR TAIWAN’S FUTURES MARKET
    • DATA AND METHODOLOGY
    • EMPIRICAL RESULTS
    • CONCLUSIONS
    • ENDNOTES
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