Is it a good idea day trade the futures markets?

The KOSPI 200 futures study case

The KOSPI 200 is the Korean index main futures contract.

The futures markets had such an incredible growth in Korea that by 2011 became the largest futures market in the World by volume, exceeding that of Eurex or CME. That changed the last years since the Korean Government has imposed stricter regulations for futures trading, making it harder now to trade there. Volumes have, obviously, fallen significantly. One of the reasons argued by the Government was to protect small investor from international predators.

Those measures were taken thanks to social pressures due to some studies that were published about the catastrophic performance of small national traders.

The problem with those measures is that they have destroyed the Korean leadership in the futures industry, which is not good news for their financial system and their liquidity, in general.

It is true that the Government has saved some people of “betting” there and losing the money, but since the Koreans have a tendency to risk their money whatsoever, they have surely found other ways to bet or trader somewhere else.

No measure will ever succeed in keeping the money in people´s pockets, as long as that people want to spend it. Only totalitarian regimes succeed in a way. But the problem is that, in those cases, there is no money to put in the pocket, not a single dime. And, even in a totalitarian regime, people will find ways to bet. The only thing that changes is the size of the bets.

North Koreans may bet lentils, but considering the problems there already, it is likely that there is not much betting lately. It cannot be when hunger is widespread.

It is true that the Korean Government has stopped many people from doing day trading in the KOSPI 200 futures, but it did not stop them from opening accounts at stock brokers, or binary options, or forex.

In some cases, the amount of money and the speed with which that people will lose will be much higher.

If a trader could stay alive six months in the futures markets, he will survive less than six weeks in the binary options market, if lucky enough.

Day trade futures for a living

The study mentioned took place between the years 2003 and 2006, where it was found that the majority of traders in that market were national residents. More than 50% did day trading.

As for volume, things were more equal, since big institutions traded more volume than individual investors.

For example, 25.91% of the volume was done by national investors doing day trading, while they would carry on 22.99% of the volume for non day trading.

On the other hand, the majority of institutional volume was not day trading, but in longer timeframes. Those institutions would move 40% of the total volume in that category. They only traded 10% of total day trading volume.

Here, we can see the first deviation in the way individual and institutional investors trade. Institutional (banks, managers, foreign professionals) barely did day trading, while national individual traders were heavily involved in day trading.

This looks to me like the traditional “do what I say but not what I do”. That means, that while institutions and brokers encourage people to do day trading, they will do swing trading meanwhile.

It is no wonder that individual Korean investors lost so much money those years.

Day trade futures successfully?

The results of the day trading activities were as follows:

  • Korean individualas: 774.431 points lost (387 billion of Korean wons).
  • Korean managers: 38.014 points of profits.
  • National banks: lost 13.317 points.
  • Foreign Institutions: profit of 31.429 points.

At first sight we can conclude that the profits made by professional and foreign traders are but a fraction of the overwhelming loses carried by the national investors. And that, despite the KOSPI had an overwhelming 100% bull market from 2003 to 2006.

In the case of the small loses of the banks, the author of the study says that it could be due to the coverage done by their portfolios, and not really bad trading.

The author counted on standard commissions for his calculations. This is because he had access for the gross profit and loss statements, and not commissions.

Another interesting data is that the individuals that traded the most had the worst losses. However, institutional groups with high volumes ended up having profits.

It is a pity we do not have data of the group of traders that performed swing and trend trading. I am sure their results were much better than this disastrous statistics of day traders.


Thanks for reading and sharing.