Differences between retail and professional options trading?

H

hocuspocus

Hello,

What would be the differences between trading with a retail account (optionsxpress, ib, tos, etc.) and trading professionally with a trading firm? I'm assuming that professional firms use supercomputers and fiber-optics to zap your legs directly to the exchange floor? Does that mean they can get a better bid/ask? If you trade professionally you'll probably also need a series 7, right? How about retail options trader commissions compared to professional traders?

I'm a novice, thanks for the input,
Karl
 
As a "novice" you need to learn options on your own or get a low level job with a firm that will help you learn before you start trading. It can take years to become a competent option trader.

In my opinion, you are talking about two different types of professionals. Those working for major firms or hedge funds have access to whatever they want but you will most likely never be one of those. In general you have two choices, go with retail like TOS or IB, or go with a prop firm. After talking with Maverick74 I think his is one of the few prop firms that actively want option traders. Send him a PM and you can get all the info you need for that route.

If you go prop you will need a series 7 and a reasonable capital contribution. You will have most all the same tools that a retail trader has but you will be subject to haircut requirements rather than the overly restrictive Reg-T. I don't believe there is much advantage to any professional trader vs. a retail trader in executions. I have done a lot of trades over the years as both and it can be an occasional hindrance when you are a large pro trader because the floor does not have to trade with you. There were many times when there were 10 or 20 contracts at a good price but when you tried to do thousands you were not going to get that price. Commissions are not a big issue because you have to take into consideration interest, leverage, and other things to compare the total package.

With portfolio margin, I believe the well capitalized retail option trader is now on par with a prop firm but there are advantages and disadvantages to each route so it depends on the person. What all that means is, you should not be wondering about going pro or retail, you should be worrying about how you are going to learn all about the complexities of option trading.
 
Real retail is directional - bullish -bearish - or neutral (premium harvesting). Institutional is now mostly volatility arb
 
Quote from opt789:

I have done a lot of trades over the years as both and it can be an occasional hindrance when you are a large pro trader because the floor does not have to trade with you. There were many times when there were 10 or 20 contracts at a good price but when you tried to do thousands you were not going to get that price.
More...

Trade size isn't necessarily an issue only for professional traders. Retail traders who trade in sizes over 100 will have the same problems with fills.
 
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