THE EXECUTION GAP IN CHINA’S DERIVATIVES MARKET: A STUDY OF THE DISCONNECT BETWEEN STRATEGIC INTENTIONS AND BEHAVIORAL OUTCOMES OF INDIVIDUAL FUTURES TRADERS

Abstract

This paper focuses on a phenomenon that is common yet rarely examined in depth in China’s derivatives market—the “Execution Gap” of individual traders, referring to the significant disconnect between their intended trading strategies and the actual outcomes of their actions. Traditional financial theory typically assumes that investors are rational and capable of executing their optimal strategies. However, in reality, especially in the highly leveraged, high-risk futures market, individual traders’ behaviors often deviate from their predetermined intentions, resulting in irrational losses. In this study, we construct an innovative three-dimensional Intent-Behavior-Outcome analytical framework and, for the first time, introduce the core concept of the Execution Gap to measure and explain this disconnect. Utilizing exclusive survey data from 773 individual traders at Huishang Futures Company, we carry out an in-depth empirical analysis.The study finds that an overwhelming majority (over 95%) of individual traders acknowledge that futures trading requires professional knowledge and strict discipline, and more than 80% claim to formulate a plan before trading; nevertheless, nearly half (46.05%) admit they cannot strictly execute these plans, and over one-third (35.06%) fail to implement stop-loss orders in a timely manner. Further analysis reveals that “failure to cut losses” and “not following the plan” are the primary self-attributed causes of their losses, together accounting for over 62%. The theoretical contribution of this paper lies in deepening the understanding of the knowing-doing gap in behavioral finance through the introduction of the Execution Gap concept, extending it from the cognitive bias perspective to the concrete level of trade execution. This research challenges the traditional view of treating individual investors as a homogeneous group, revealing significant heterogeneity in their strategic cognition, execution abilities, and risk control. The conclusions of this study have important theoretical significance and practical implications for regulators formulating more targeted investor-protection policies, for futures companies optimizing their investor education and service systems, and for individual traders improving their self-awareness and trading performance.