Local trader profitability in futures markets: liquidity and position taking profits

This study examines the profitability of local traders on floor-traded futures markets. Using unique data from the period of floor trading on the Sydney Futures Exchange, local income is decomposed into liquidity and position-taking profit components. Locals on the trading floor are found to make significant position-taking profits. Moreover, the ability of locals on the floor to derive position-taking profits is positively related to order-flow related information, and negatively related to the presence of exogenous information, local liquidity profits and the length of a locals inventory cycle. Accordingly, this paper characterizes locals as active informed traders.