Institutional Trader vs Retail Trader

There are many contrasts between these two types of traders and even though the institutional traders seem to have advantages over the others, retail traders do have advantages in other aspects as well.

Funds

In terms of funds, it is clear that the institutional trader has an edge over the retail trader by a mile. What makes an institution an institution are the funds that it has. Huge amounts of capital help any business model and trading is no exception to that. With access to huge amounts, even 50% of the trading account becomes a big feat. For instance, a trader who makes $250 million from an account with $500 million is just the same percentage-wise as a trader who makes $50 from a $100 account. So as long as an institutional trader is practicing good risk management then he is on course to break records. Well, I made it look way too easy to stress a point but I am sure we all know it isn’t.

Psychology

Here, the retail traders have an edge over the institutional trader. Most institutional traders end up having to see psychologists for their mental health that comes from the stress of managing big funds. Managing the big amounts of funds come with a lot of stress and hence the institutional traders constantly have to keep their psychology in check. Continuing with the first example, the implications of blowing a $100 dollar account cannot be compared to that of blowing a $500 million dollar account.

Access To Information

Now that we are in the age of the internet, information is free just as the air that we breathe. But the institutional traders may have a slight edge on this in the sense that they have a whole team that will be researching whereas in the case of the retail trader he is usually alone

Bottom Line

The institutional trader has more advantages over the retail trader, but the retail trader also has his own advantages. These include trading in a way that he wants as well as less pressure amongst other things.