In answer to the OP's question: personally I would say the average small trader, especially day traders, systematically loose because even if they manage to be right half the time , commissions, mistakes and emotions will erode any edge they may have. However those that manage to stay in the game long enough to figure it out will outperform the big hedge funds on average I would say, if you are basing it on strictly % returns rather than total sum earned. Its quite possible for a small or 6 figure acct to make a few hundred percent returns a year using leveraged instruments such as futures or options. Also successful small traders can take advantages of small inefficiencies whereas a big fund wouldnt bother wasting their time on such a strategy. And as the other have mentioned already, a small trader can convert to cash in an instant allowing him to move his money around ways a big HF couldn't. Also even the best HF at most have been returning over 100% in a single year , and they're lucky if they do it more than once. A small trader can do several hundred % year in year out ( ive personally witnessed this so dont give me any bullshit). Of course those kinds of people represent a very small minority of the overall group of small traders.
Although hard to prove, I would probably say there a steady flow of capital from novice new small traders accounts that end up in successful small traders, hft and big funds accounts.
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