Institutional vs Retail trade management differences?

A

Aston01

I was wondering if anyone could share a bit of insight in regards to the differences between Institutional and Retail risk management trading styles. I am primarily referring to shorter term trades, but not necessarily down to HFT time frames.

One of the main things I run across a fair amount is the much discussed benefit of retail traders relative trade size is they can be nimble, which seems to facilitate and in some regards promote getting in an out of positions more often. Where as a Institutional or similar entity trading at far larger size then retail, just flat wouldn't seem to have the same flexibility to enter and exit on a whim.

Anyone that has spent much time reading about trading has probably heard about stops, trailing stops and similar strategies that are widely promoted and used by most retail investors (as well as the larger players methods to target these techniques). In a lot of ways most methodology routinely promoted to retail traders is inherently sensitive (almost too sensitive) to the hard right edge of the screen. But what does a large size trader do differently due to there size? I can't see where it makes sense for them to constantly get in and out of their position at every little bobble in price or for that matter stay fully hedged in a directional trade.

Can anyone possibly shed some light on this for me?
 
I think you have answered your own question. Large institutional traders know there is a cost to enter and exit a trade. They know they can't do that in illiquid stocks in one trade. Even more liquid, high volume stocks can move as large orders show up.They often use algos, trading desks or floor brokers to work orders and make phone calls to find liquidity.

The fact is that they normally don't trade for small moves.

1245
 
Aston01 said:
I was wondering... in regards to the differences between Institutional and Retail risk management trading styles...
...benefit of retail traders relative trade size is they can be nimble, which seems to facilitate and in some regards promote getting in an out of positions more often...

...heard about stops, trailing stops and similar strategies that are widely promoted and used by most retail investors (as well as the larger players methods to target these techniques).... But what does a large size trader do differently due to there size? I can't see where it makes sense for them to constantly get in and out of their position at every little bobble in price or for that matter stay fully hedged in a directional trade.

Can anyone possibly shed some light on this for me?
More...

In my opinion professionals manage their trade continually adjusting their position and hedge to take advantage of opportunities. With large enough size they break or enforce S/R levels.
They have a better understanding of the game. They possess superior skills and use superior tools. They may not even feel the pressure a retail does if they are playing with client money, because they have revenues in the form of commissions. They don't get tired thanks to automation and personnel. They keep their mouths shut about what they do.

They are grateful to retails and today is for them no special day because they celebrate fools' day every day.

-ras72
 
Your point about retail and institutional methods being vastly different is correct, but its not just because of size. .....there are also a myriad of institutional type traders.
long only, no leverage, no derivative, value, momentum, bench marked, mandated, risk constrained....

Have a look at the different turn over stats for different funds, some are more active than others. Then there is the issue of less constrained 'hedge funds' and their optimum returns being achieved when they are small......etc; etc;

adding to what 1245 says.....
To keep it simple - "But what does a large size trader do differently due to there size? "
Many things - including swaps, OTC, average price matching, vwap, algos, dark pools, longer time frames, portfolio (basket) trading, less leverage, (more leverage more spreads). trading in the most liquid instruments only or modifying mandated portfolios and time frame expectations (think small cap, micro cap to mid cap), reweight

Key is retail and large insto orders and mindsets/approaches are often very different.
 
Larger, institutional type traders realize that the process of entering and exiting trades incurs a large cost (not only bid/ask, but also labor and time). Furthermore, these costs don't scale linearly with size. Therefore, it's often not economic to do higher frequency trades.

That said, there's all sorts of institutional money out there, including ones that do punt arnd a lot. Still, those are relatively uncommon.
 
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