I started an Investing Catechism thread elsewhere. My goal there was to show some of the pitfalls and some of the correct thinking when investing. It is debatable if it makes people better investors or not. I feel that the more you know about what assumptions are underneath you, the better decisions you will make in the long run. I thougth I would start a similar thread but instead geared toward trading. Some people might find this a bit strange, as to them investing and trading are one and the same. But they are worlds apart! Without further ado, here is the answer to ETs most frequently asked question. The question gets asked in different guises, but unbeknownst to the poster, they are all the same, or the flip side of the coin, they are not even asking the right question so they keep getting the wrong answer! You will see questions like, "Who gives the best signals on ET?". Or, "Scaling out is inferior behavior". Or "What is an edge" or on and on for tens of thousands of posts, and ten years+. Here it is: The difference between institutional trading and retail trading is, the institutions that trade correctly don't take directional risk. They may have a directional portfolio, but it is part of their statistics and it is minute part of their whole operation. They are in the business of minimizing risk as is conceivably possible. They make their money by doing huge size, and picking up "nickles and dimes" multiplied by this huge size. Packed in that one sentence is the key to all trading. If you can figure out how as a retail trader you can do the same, you will have a long and healthy trading career. Notice all the assumptions packed in that sentence. It assume a multitude of things, the least is not which is, do you have the capital and time to pull it off.
TOTAL HOGWASH! For most of us.. to make a significant percentage return on our capital, we MUST make an unhedged bet on direction and be correct. Institutional players are not as much concerned about making a superior return on investment as not losing clients...and trade accordingly. (Nitro... I've always thought you a smart guy. What the Hell went wrong with your brain? Woman involved?)
Aha! Thanks for making the most pertinent point of all for a retail trader: That we don't have the means to trade like an institution. Or do we? The tension between your post and mine is the holy grail. Not to markets, but to all newbies coming to ET looking for magical answers.
For the most part, NO! Nor should we want to. We "retailers" are trying to make (a lot of) money... high percentage return.. as we are not working with "tons of capital". Institutions are trying to make "just enough to keep clients happy so they don't fire us and we can continue making our fees and bonus".
ok, I'll play...if these institutions are not taking directional risk, then they are taking on another form of risk...perhaps a volatility risk...somewhere there is always a hole that will expose a strategy from time to time.
So what you are saying is that all members of an ecosystem can only thrive in a singular manner. What's good for the whale is good for the plankton.
Very astute, it is a multi-dimensional game of chess that has to be played with the utmost precision and skill. It is not transfer of risk. It is diversifying risk.
stfu for once and stop killing the very few threads on this site that still show a minimum of intelligence.