Abstract
We use a 2018 survey of FX margin traders in Japan to investigate which key factors influence their trading performance: socio-demographic and economic situation, investment strategy and trading behaviour, and/or financial literacy. We study this question using general-to-specific modelling and impulse-indicator saturation. First, the data show that variables from all three groups are significant predictors of traders’ performance. Second, we find that older traders and those without a specific trading strategy demonstrate lower performance. Performance is higher for those who trade greater amounts, rely more on fundamental analysis, and report having profitable FX trade skills. Third, respondents’ subjectively stated claim of having FX trade skills is based on a more advanced understanding of FX trading and a reliance on professional advice. Neither objective financial knowledge nor over/underconfidence play a noteworthy role in the performance of margin traders.
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