How can individual traders compete with large trading houses?

I think on most of the markets, the top small traders have better returns or SR than the top big traders. Size is really bad.
You can see it when you see the past performances of top big traders (when they were small).
Increasing size almost always decreasing performance.

Maybe it can be different in some markets. However I think it's the same in Ags.
 
There is no competition. A liquid market allows you to buy and sell pretty much whenever you want.

But sure. You do raise an important issue. How can a newbie expect to be profitable or even successful as a trader when even professionals with all their resources, education and experience struggle and even fail?

Obviously, it's not easy, but the solution is education (whatever that is for you) and knowledge. Expect 3-6 years of studies before you're getting anywhere.

Prepared to do that? Most ain't. And the sad thing is that even after 3-6 years, you're most likely not going to be successful.
 
F430 said:
I assume the individual trader is at a huge disadvantage compared to large commodities trading houses.
These large firms have all the resources, experience, expertise, and deep roots in the industry.

How is the individual trader able to compete?
More...

All of those things you mentioned are irrelevant to the success of an individual/retail trader :sneaky:o_O
You need to change your way of thinking, if you want to Survive the Game.
 
Well, having been a commercial electricity / energy trader myself in the past, then yeah I would admit that generating producer might have an advantage in, let's say, the hourly and the very short term electricity markets. But a "big trading house" ? Not necessarily. In fact, I saw a large German bank's trading desk lose $15M in one day in ERCOT (verified by two different top tier OTC electricity brokers). Several "big trading houses" were completely wiped out in the Cotton Markets in 2011. A few of those prominent firms were over 100 years old.
 
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I think the situation in very analogous to how a startup manages to compete in an industry with big established companies with far more resources and experience. In general you use a form of judo to take advantage of their bureaucracy and momentum and take over some niches that aren't worth it for them to pursue. Often niches work because, believe it or not your costs may be lower than theirs. They have highly paid employees who want nice offices in NYC and the latest and greatest data and visualization services. If you can do your own coding and work from home in Omaha, then you can profit from a niche where they can't, even if they pay lower transaction costs. In addition, you can find an opportunity and exploit it the next day. They need to run it through their risk department, ensure it meets their investment thesis, do the TPS reports on it.... If it's a small opportunity, your typical professional won't even bother with all that crap, just not worth it. Even if they do it will be weeks before they can actually be in the market with it.
 
Being small can be an advantage too. If you can detect the intentions of big players to buy or sell a stock/future by looking at the chart/T&S/L2, you can front run these players and make money. This happens because they don't buy or sell all at once but do it gradually which creates a trend that lasts for a while
 
Any trader that has inside knowledge of physical information is at an advantage when trading commodities. If you don't have access to that information then it's better to not choose those games unless you are purely trading a stat arb type strat. I am talking about traders that work for companies who are producers, refiners and own storage/pipeline/vessels. There is also a lot of government involvement in energy markets. I can tell you that a lot of the companies which own these assets are able to loosely collude and if you are not in the club you wont get the info. If they are going to 'open up an arb' you are not going to know about it unless you are an employee of one of these companies and all that that entails.

The advantage of being a small trader is that you can be flexible with the markets you trade. You don't have to trade and you don't have to make a price. GL
 
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