The advantages of the retail trader.

  • You can choose any market you want. Being able to choose any market you want is an enormous advantage because many bank traders get stuck when the market they are trading is not that volatile or not trending in a direction. Transitioning from interest rates to FX or commodities is not a very common because it takes too long for the trader to adjust to the conventions of the new market. They have different reference points, different ways of referring to risk, different fundamentals they are focused on, different geographies that affect the price and different relationships between people who know what is going on in that market. Typically the retail trader is more focused on looking at charts or getting on a bigger picture theme. They are never going to be able to be further up the information curve than banks who have customer orders and can spread the cost of research across the trading floor or hedge funds where management fees are rolling in.
  • You can trade any way you like. As a retail trader you can test out a Feeling without having to put in copious amounts of research or statistics to justify a new approach. You don’t have to explain to anyone why you think this could work, you can just try it. You are also not limited by the failures of your manager or colleagues who may veto a particular style of trading because it lost them a lot of money. Their rationale is fair enough but that doesn’t mean you can’t make it work.
  • You have the freedom to express any idea regardless of what your manager thinks. Professional jobs in trading are very hard to come by so even if you actually managed to get in the door and get on the desk then your manager may not be someone who helps you succeed. Traders often have quite strong personalities and I think we have all seen examples where a star player and a great coach cannot seem to get along with the result that both have poor outcomes. Unfortunately in business it is more likely to be the player and not the coach that get sacked. As a retail trader you are your own boss.
  • You can trade as small (or large) as you want. It is not meaningful for professional traders to trade very small positions because even if they have fantastic percentage returns there are fixed costs of sitting in their seat as well as customer order flows which may cause losses that swamp their profits in outright positions. Everyone has a different risk tolerance but the parameters of a job on a trading desk will be relatively standard across most positions. The retail trader has the advantage of being able to tailor their risk taking to something that suits their own preferences. This is very important at the start because typically retail traders take on bigger positions and get that stomach churning feeling on losses, to which the obvious answer is trade smaller.
  • You can trade anytime you want. Bank traders are not encouraged to trade outside their own hours too frequently. If they live in London they will be typically trading the London time zone, if they are living in Asia they may be trading the Asian time zone or if they’re on the night desk then they will be trading the overseas time zone. Depending on which market you want to trade, this may mean that you are not in the volatile time zone for that product. The retail trader can choose to participate in the most favourable time zone for the products they are interested in. This again is another advantage and one that you should be definitely aware of because putting in entry or stock orders should always take into account the volume during which the price action which occurred and in which timezone it occurred. For example you don’t necessarily want to follow the trend of the Asian session into the European Open without watching at least the first hour or so of price action once you know the traders are in London.
  • The cost of your seat is very small. With a large amount of brokers and low cost of computing power these days anyone can start trading with almost zero overheads. If you are trading on a bank desk first of all is the cost of the real estate, all the on boarding and training costs, the salary you have to be paid while getting up to speed with internal systems, the subscription to data services such as Reuters and Bloomberg, trade capture and reporting system such as Murex, cost of Group Services for each employee such as legal, HR and IT. And you can use the latest software available without having to pay a huge amount to switch from an old legacy system which takes time away from your ability to do research analysis and background reading. Much of the time a bank trader has to spend is not actually related to analysing the market, but dealing with system issues.
  • You don’t get stuck with customer orders. Whilst customer orders can be an easy way to make money for Bank Traders they can also be a curse. If an order is quite large and typically larger orders will come from an institution that has many banks on the panel, they will be shopping the price around to see which bank can give them the best deal. This means you will probably have to reduce your price and worse, everyone knows if they don’t get the customer order that somebody else does have it and they’ll have to get rid of it. It’s like being dealt a hand in poker but everyone already knows what you’ve got. It’s very hard to make money out of that situation. You also face pressure from the sales people to show a good price, so they can get more order flow because that’s how they get paid. These are all different ways to say that you could be forced to take something which loses you money. As a retail Trader you never have this obstacle to overcome. Set alarm
  • You don’t have daily, weekly, quarterly or annual PnL targets. Having short term, medium term and long term goals creates focus but one of the problems of being a bank trader is you may need to make money even when the market that you trade is not providing any trade setups you know are favourable for you. Necessity being the mother of Invention is truly the case and this could create some good learning opportunities but it also means you need to take trades that you wouldn’t otherwise do.  This is bad for psychology and is probably one of the most underappreciated opportunities for retail Traders to improve their results. As a retail trader you can simply look at a different market or choose not to trade when conditions are not ideal.