Tuesday, November 6, 2012

We versus Them

Large institutions like FIIs, mutual funds, hedge funds etc. have many advantages against individual, retail traders. For example they use sophisticated software; they employ highly educated people for their trading desks, they get very low brokerage rates from their brokers.

But individual retail traders also have their own edges against these big institutions!

1. Retail traders don’t trade huge sizes so they need not worry about their own order volume impacting the price action while for large institutions it’s like a large elephant that cannot help but increase and decrease the water level of a pool when it enters and exits.             

 2. Retail traders can sit freely even for days if they don’t find an opportunity but can a large institution let its traders sit idle after spending so much in maintenance and salaries?               

3. Due to the competition among them to attract funds, large institutions are under much more pressure to get higher returns.

With the advent of technology even small retail traders have got access to real time tick by tick charting/technical analysis software which has democratized the trading business. Although large institution may have proprietary codes or more indicators but for traders the most important information is the “price” to which both type of traders have similar access.

So crux of the matter is that in the business of trading, despite the existence of large institutions, small traders do have chances of success if they use their edges properly. So when those stories of rough traders who have lost billions for their institutes come out I think that it’s better to be a small fish than to be the “London Whale”.

[Contributed by Jitender Yadav. Thanks, Jitender for this excellent post]


Dinesh said...

Dear Sir,

It was an excellent post.

My personal opinion is that a large number of people loose money because they are not full time into stock market and also do not have access to critical information. They are absolutely not in a position to influence the price which FIIs can, by bulk buying / selling. Demand / Supply play a major role to influence the price of a stock or rather any commodity like Property. Algorithm trading allows to buy / sell large quantities by breaking the order into small chunks. A small retailer does not have access to this tool.
So, the possibility of FIIs loosing money as compared to retail is low.

daytrader said...

Market gives equal chance to everyone irrespective of the a/c size it’s your system (if technical trader u are) and your believe into it create the difference,
In my view discipline and money management are 2 key factor which contribute 75% in trading career
Just sharing my actual trade, I trade bank nifty mostly and exit next day,,,
I was long from Tuesday 11567.yesterday market closed not so strongly even my system given an exit at 11759 and a aggressive short signal at 11730 I just ignore the both signal and today I closed the trade at 11630..went short at 11623 with a stop at 11695 stops were hit today now I am having a net loss of rs 125 excluding charges. (if closed yesterday would had a profit of 4800- charges)
This is reality,
Discipline , discipline ….follow your system ,,,
And ignore news,,, control your emotions ,my action was totally biased due to news ,,I thought the market will cheer up obama because I like him,,,but not market
Although I am in agreement with others that in nifty there is a breakout broadly at 5720-30 resistance line and 5580(gap support ) these level should be watched on closing basis ,,my system is still in sell mode ,,will go long once today’s high will breached ,,,and tomorrow will be a fair chance, depending on sbin results because in my view due to sbi banknifty held its level, also creating a demand for others while if disappoint sbi and icici will drag bank nifty…
While writing this s&p down by another half percent..But have a fair chance to test 1400..let see,,

daytrader said...

kinly read 5680 instesd of 5580,gap support

daytrader said...

Dear Sir
it seem 'like ,that the breakout has been fail now ,,but day after tomorrow is dipawali ,,
a request ..
how u approach the market on market,,,or a general idea what should be the idle way ..

prabsharan singh said...

wish u a very happy and prosperous diwali sir...