Retail vs. Institutional Traders

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Would you guys say that the best traders trade other peoples' money at a large firm or trade with their own money? It might sound like a stupid question, but I could see reasons why the best traders would rather trade their own money. When you're playing with tens to hundreds of millions it seems a lot more difficult to make the monthly returns that smaller guys are making with their own money. I feel like there are a lot of guys you don't read about in the WSJ who are making stellar gains each month but they prefer to stay under the radar. If trading is what you really care about and you don't care about the fame or prestige, is it even worth working for someone else and trading their money?

Comments (21)

 
Jul 15, 2014 - 1:33pm

Come on, what do you think?

This is what retail traders (not investors but speculators) do:
- directional trading (extremely concentrated risk + good luck with consistency)
- base their decisions on fundamental/technical analysis
- watching motivational videos on not giving up
- thinking they will be able to become full-time traders from home if they work hard enough
- and most importantly: THEY DON'T HAVE AN EDGE.

Unfortunately, trading from home is not that romantic as you seem to think.

 
Jul 15, 2014 - 2:27pm

Well.. I'm not quite referring to the average person who tries to "play the markets" and thinks it's a quick and easy way to get rich. I'm talking about guys who treat this as a business and understand the risks and difficulties they'll have to face. Think for instance of the traders in Market Wizards. I know it was written a while ago, but a lot of them traded their own money for the most part. Some temporarily worked at a firm and some went on to manage others' money, but they all said how much more difficult it is to trade when you're trading with other peoples' money.

You think this kind of stuff still exists today or am I just not with the times?

 
Jul 15, 2014 - 2:52pm

EUGTR:

Well.. I'm not quite referring to the average person who tries to "play the markets" and thinks it's a quick and easy way to get rich. I'm talking about guys who treat this as a business and understand the risks and difficulties they'll have to face. Think for instance of the traders in Market Wizards. I know it was written a while ago, but a lot of them traded their own money for the most part. Some temporarily worked at a firm and some went on to manage others' money, but they all said how much more difficult it is to trade when you're trading with other peoples' money.

You think this kind of stuff still exists today or am I just not with the times?

Doesn't make too much of a difference. I extremely doubt it would exist today to be honest. All I know that it's a much more different than it used to be (apart from the psychological stuff obvously) and the question what needs to be answered is that what kind of edge you can have trading from home, even if you are an ex-professional trader? None. And this is where it fails.

Retail (trading from home) and professional traders are playing two VERY different games.

About staying under the radar: if they are truly profitable traders, they wouldn't want to stay under the radar anyway; who wouldn't want to have more capital, to make even more money?

 
Jul 15, 2014 - 3:17pm

Seems like it was harder for someone to trade on their own back 20-30 years ago though. Think about it, with the advancements in technology trading has become more available to people outside of financial firms. From research and education to placing orders, it has all become a lot easier for people.

As for wanting more capital, maybe... If you're running your own fund and want more money then yeah it makes sense. But then you've got even more pressure and have to deal with the emotions that occur when you make a losing trade and know you just lost someone else money. On the other hand, if you're a trader making 3-5% a month why would you want to be an employee stuck with a salary and make someone else rich?

 
Jul 18, 2014 - 1:46pm

I know plenty of independent traders that make high 6 - 7 figures+ that have no interest whatsoever in taking on clients. Trading for themselves they don't have to answer to anyone. No one second guesses them (other than maybe the risk desk on rare occasions). They don't have to worry about outperforming a benchmark. Also, there are certain strategies that might make sense to trade on a individual basis where the trader gets the lion's share of the profits but aren't worth it for an institution.

 
Jul 20, 2014 - 4:02pm

Institutional vs Retail Trading (Originally Posted: 06/28/2007)

How big is the difference in flow, and thus compensation, between the institutional and retail sides of S+T. Obviously the flow is much lower in retail, but the margins are better.

Can anyone comment?

 
Jul 16, 2014 - 12:56pm

Running your own fund and sourcing for more money..... damn it, you've turned into an institutional client.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 
Jul 20, 2014 - 4:04pm

Institutional S&T v Retail S&T (Originally Posted: 12/22/2012)

Hey guys,

Other than the fact that retail Sales interact with FAs and Individual Investors whereas the Institutional side deal more with Mutual Funds, HFs, etc..

What other significant differences exist between the two?

"Many are stubborn in pursuit of the path they have chosen, few in pursuit of the goal" - Nietzsche
 
Jul 18, 2014 - 2:12pm

There are successful traders who trade independently. The institutions have an advantage in terms of technology, routing, and information resources. However, the at home trader tends to do smaller volume and as a result they don't move the market as much as an institution who wants to buy/sell 100 times as much. Therefore they are able to get in and out at a better average price. However, my guess would be that the best traders work at hedge funds and are pulling in 8, possibly 9 figures.

 
Jul 20, 2014 - 4:06pm

Retail/WM Sales and Trading vs Institutional. S and T? (Originally Posted: 12/10/2010)

Hi All,

Aside from dealing with retail brokers as opposed to institutional clients, can anyone shed some light on the differences between WM Capital Markets Sales and Trading, and traditional Institutional Sales and Trading.

Cheers

"Major in economics; use your economics degree to get an analyst job on Wall Street; use your analyst job to get into Harvard or Stanford Business School; and worry about the rest of your life later"
 
Jul 18, 2014 - 2:22pm

Bottom line, a retail/independent trader has to cover all of his overhead, conduct his own analysis, risk control and execution where an institution has separate departments for each. Independent traders don't have a salary and your job experience counts for nothing anywhere which is a helluva lot riskier than any dollar amount you may or may not lose.

Generally the better independent traders become commodity pool operators, which is effectively a HF which gives you more stability in your income but that is still dependent on your performance since clients don't stick around if you start losing.

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