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Feedback Trading: The Intraday Case of Retail Derivatives

Author

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  • Rainer Baule
  • Bart Frijns
  • Sebastian Schlie

Abstract

We analyze retail order flow in terms of intraday feedback trading patterns. Using a unique data set of exchange trades and high‐frequency quotes, we first provide evidence that retail investors actively and consciously respond to short‐term intraday returns in a negative feedback, contrarian fashion. Second, we show that some retail investors also feedback trade on tick‐by‐tick returns. Third, we find that on average this behavior leads to significant losses on the day they open a position. These losses are primarily due to the bid‐ask spread and to investors' timing inability, but not to market makers taking advantage of investors.

Suggested Citation

  • Rainer Baule & Bart Frijns & Sebastian Schlie, 2024. "Feedback Trading: The Intraday Case of Retail Derivatives," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(9), pages 1487-1507, September.
    • Handle: RePEc:wly:jfutmk:v:44:y:2024:i:9:p:1487-1507
    DOI: 10.1002/fut.22536
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    References listed on IDEAS

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