Why do institutional traders have an advantage if any advantage is whittled away by using it?

I think the colloquial thought is that institutions have advantages against retail traders, but wouldn't any exploitable pattern be quickly arbitrated away by their own actions?

I suppose there could be a significant advantage in discovering the patterns before anybody else does. But competing institutions would quickly negate any shared advantage.

 

Hi CyJackX,

I guess it matters your definition of institutional, what they trade and their needs. If the trading has a high fixed cost, a small account can't handle that. E.G. Fixed costs of $25,000/month would kill any small account and be a small number to an institution with $500mm. A small account trading a strategy without a large fixed cost, can be more nimble, require less liquidity and have an advantage over a larger account.

No easy answer.

Bob

 

several advantages:

- these people are smarter on average. you don't get into Wharton with 2.5 GPAs.
- information - they get better information from people closer to the real source. The public gets from media, which leads to:
- media tool - institutions can manipulate media, by persuading the public to act on their agenda;

these advantages are perpetual... we are not talking about some chart pattern that may only work for a few months.

 

Not sure about this one. Some of the smartest people I've ever met have never traded a stock. Later in life, they pick up trading as a hobby as they have the time and enjoy the challenge.

 

Position limit on ES is 140,000 contracts i think.
If the trading strategy is long term lets say 200pt+ stop loss.
Even a 140K lot position is not going to effect the market that much to enter and exit relative to your stop size.

 

That is an enormous trade that would likely never happen.

 

Even for a large institution?

But that was sort of my point, some of the biggest markets are so large, even the largest funds cant trade at the max permitted size over a longish time horizon. The risk is too much even for them.

 

Their advantages involves many other variables that has nothing to do with patterns. Thus, they will always have those advantages over retail traders.

wrbtrader

 

Margin of about $840mm? Who would take the other side? Yes, very large.

 

Now, is that advantage OVER the retailers or AGAINST the retailers? The way I see it, it's all against the market. Institutions are often portrayed as adversarial.