A retail trader is an individual trader who trades with money from personal wealth, rather than on behalf of an institution. A retail trader is someone who trades their own money, but not for a living.
They buy or sell securities for personal accounts PA. Institutional traders buy and sell securities for accounts they manage for a group or institution. Pension funds, mutual fund families, insurance companies, and exchange-traded funds ETFs are common institutional traders.
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Institutional traders have the ability to invest in securities that generally are not available to retail traders, such as forwards and swaps. The complex nature and types of transactions typically discourage or prohibit individual traders. By definition, the SEC considers retail traders unsophisticated investors, who are afforded certain protections and barred from making certain risky, complex investments.
The average lifespan of a strategy is about 1 to 3 years. What should we do when our strategy dies? We research and develop new ideas note: you should be developing new ideas even when you have a working strategy. Funds have pressure to deploy their capital. Thus, they might be forced to make sub-par trades. Imagine if an asset management fund wants to buy a significant stake into Company Banana.
This will definitely move the market. Other players may notice and join the trade.
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Retails traders rarely move the market. Capital withdrawals tend to be disruptive to the investment strategy. Investor withdrawals may cause the fund manager to liquidate his holdings to raise cash. This is especially disruptive if the asset liquidated is illiquid since cost of liquidation is high executing at bad prices and paying up bid-ask spreads etc. Large funds that are regulated have to disclose some information on their holdings.
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This makes it more difficult for them to outmanoeuvre the market. Our trades are hidden.
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Big funds have better bargaining power and can negotiate lower execution cost, commission rebates and shorting or margin fees. Big funds have access to prime brokerage, other support services and a wide range of financial products. These support services spend countless hours researching and executing the best deals for the funds.
Can Retail and Institutional Trading Co-exist on the Same Platform?
Retail traders do not have this luxury. Moreover, some institutional traders have special agreement with brokerages to act as specialised market makers.
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They get better information and trading terms. Information is king.