FX Margin Trading and Disposition Effect

2015 Fiscal Year Final Research Report

• Project/Area Number: 25380396
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Money/ Finance
• Research Institution: Kobe University
• Principal Investigator: Iwatsubo Kentaro 神戸大学, 経済学研究科(研究院), 教授 (90372466)
• Project Period (FY): 2013-04-01 – 2016-03-31
• Keywords: 気質効果 / FX証拠金取引 / リスクテイク

Outline of Final Research Achievements

In Japan, FX trading is controlled by loss-cut rules. FX trading brokers are supposed to compulsorily execute offsetting transactions when total unrealized losses arising from a customer's investments exceed a predetermined ratio. This operation is intended to curb investors’ losses and reduce firms’ financial risks. By contrast, some people are opposed to this operation because it restricts the freedom of investment. This paper assesses the effectiveness of loss-cut rules. The results reveal that a high probability of invocation of the loss-cut rules is found in investors who habitually, not temporarily, have a strong tendency toward the disposition effect, and that such a tendency is diminished after experiencing a compulsory loss-cut. These findings suggest that the compulsory loss-cut system works effectively for investors who are unable to put a stop-loss strategy in action at their own initiative and that this system disciplines investors whose loss has been compulsorily cut.

Free Research Field

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