Why do institutional traders have an advantage if any advantage is whittled away by using it?

[Gotcha]

Another ploy they use is quietly accumulating a position - this may take weeks. Than they will aggressively buy at the ask with much smaller size lifting their net position profits significantly.

This is an excellent point. Not to say that I watch for this specifically, but because I watch short time frames, its amazing how many nuances are there.

One this that has always amazed me is how price can move 4 or 8 ES ticks on little volume, or it can hardly move on huge volume. Having a large position at a particular price point can be actually worth different amounts of profit depending on how it is unloaded. If you can move price up 8 ticks on relatively low volume, now your entire stash of contracts can be worth so much more as long as this new price level is accepted and you can dump the rest at roughly this price or higher.

I've always though this about real estate. A shitty house in an explosive market may be worth 1 million, but this is a price that only a few people will get, those lucky enough to sell. If all of a sudden 20% wanted to sell in the same neighborhood, well, clearly the fair price would be every increasingly lower. It is truly amazing to me how market value of real estate can be based on so few transactions.

Likewise, one ES contract may be worth the 2720 price that it currently is, but 100,000 surely are not worth this same value. But when you can use just several thousand to push the price up a few points, you in some way raise the value of all of them, but only for you if you're the guy going to be selling yours into the rally.

 

[bone]

Since I’ve got Commercial and HF experience, I thought I’d share my experiences.

In those environments I traded products that no retail and very few prop traders would have the capitalization and expertise to participate in. I’ve yet to meet a retail trader with an ISDA agreement. We traded OTC cash markets, swaps and various OTC derivative products. From time to time I would use exchange traded products - for hedging purposes typically.

Institutional traders are not scalping ES or CL for tics as far as I’m personally aware of. But I’ve seen and heard of some huge block trades in those names that never saw the light of day on Globex - that happens on a regular routine basis.

I’m sure there’s a couple other Members who might be able to add some color, fwiw.

 

[bone]

I think the colloquial thought is that institutions have advantages against retail traders, but wouldn't any exploitable pattern be quickly arbitrated away by their own actions?

I suppose there could be a significant advantage in discovering the patterns before anybody else does. But competing institutions would quickly negate any shared advantage.

By and large, true “Institutional Investors” are by default immune from arbitrage concerns because their position time frame holding requirements are so much longer than a market maker’s, or a scalper, or a day trader - probably longer than most swing traders. Sure, they’re going to go to an IB desk or an OTC broker for a block trade or OTC derivative - and the counterparty will collect the bid/ask Spread, but that’s nominal execution slippage for them. The counterparty is laying it off in order to collect the differential - they’re not betting against them per se. And the desks that make markets for Institutions are engaged in a competitive enterprise - they get shopped around and markets get quoted by private brokers and listed on private message boards.

I have personally seen blocks of 10K CL get done on WebICE within a tic of where the Globex market was trading. That’s rather common.

If you can get hooked up with some hard copies or electronic articles from the journal (and website) “Institutional Investor” that would add some color.

 

[wrbtrader]

...I've always though this about real estate. A shitty house in an explosive market may be worth 1 million, but this is a price that only a few people will get, those lucky enough to sell. If all of a sudden 20% wanted to sell in the same neighborhood, well, clearly the fair price would be every increasingly lower. It is truly amazing to me how market value of real estate can be based on so few transactions...

http://www.businessinsider.com/san-francisco-housing-crisis-home-sale-2018-2

http://www.dailymail.co.uk/news/article-5222599/Dilapidated-Sydney-homes-sold-1-5-MILLION.html

https://www.cbc.ca/news/canada/toro...beach-sells-for-more-than-1-million-1.3213863 (bring flashlight and enter at your own risk)

wrbtrader

 

[sle]

I think the colloquial thought is that institutions have advantages against retail traders, but wouldn't any exploitable pattern be quickly arbitrated away by their own actions?

I don't think we have defined "institution" well enough, since different institutional players have different advantages and disadvantages. For example, primary advantage for a listed product market-marker is technology. The disadvantages of being a market maker are, primarily, technology costs and regulatory risks. Along the same lines, for an OTC product market-marker, market access and access to flow information are the primary advantages, while the key disadvantage is the potential for adverse selection. An investment bank's primary advantage is it's balance sheet etc.

 

[wrbtrader]

https://www.investopedia.com/articl...-institutional-traders-and-retail-traders.asp

wrbtrader

 

[murray t turtle]

By and large, true “Institutional Investors” are by default immune from arbitrage concerns because their position time frame holding requirements are so much longer than a market maker’s, or a scalper, or a day trader - probably longer than most swing traders. Sure, they’re going to go to an IB desk or an OTC broker for a block trade or OTC derivative - and the counterparty will collect the bid/ask Spread, but that’s nominal execution slippage for them. The counterparty is laying it off in order to collect the differential - they’re not betting against them per se. And the desks that make markets for Institutions are engaged in a competitive enterprise - they get shopped around and markets get quoted by private brokers and listed on private message boards.

I have personally seen blocks of 10K CL get done on WebICE within a tic of where the Globex market was trading. That’s rather common.

If you can get hooked up with some hard copies or electronic articles from the journal (and website) “Institutional Investor” that would add some color.

%%
Same principle,good points, but in a different market. Some commercials specialize in something say for 20 or 21 years.And when that broker told me something real logical,but i knew his offer was too low, because i had done a study+ had already consulted with some trusted commercials [This comment concerns a specific market that is mostly private+ public, + small gov %....]

 

[qxr1011]

I think the colloquial thought is that institutions have advantages against retail traders, but wouldn't any exploitable pattern be quickly arbitrated away by their own actions?

I suppose there could be a significant advantage in discovering the patterns before anybody else does. But competing institutions would quickly negate any shared advantage.

the advantages of institutions relative to the general public lie not in their IQ, information or media but only in their position in the market

since public will never be able to attain the same position this advantage is permanent

 

[ironchef]

A good trader can learn how to detect both scenarios and shadow them.

How?

I was trading/watching AAPL during the period BRK accumulated >$10B AAPL position and even if you put a gun to my head, I won't know they were doing it.

Any comments will be greatly appreciated.

 

[murray t turtle]

the advantages of institutions relative to the general public lie not in their IQ, information or media but only in their position in the market

since public will never be able to attain the same position this advantage is permanent

%%
Generally true; + some specialization helps. Lasted a while for LTCM+ Bear Stearns, Lehman.........And Carl Ichan did help bust up /straighten out AIG. Same way Mr Pickens picked off some badly managed companies.