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

[CSEtrader]

Their advantages involves many other variables that has nothing to do with patterns. Thus, they will always have those advantages over retail traders.

wrbtrader

I hope no. You are second generation CME trader, correct? And in the 70s it was just kind of a club for locals, old families, the barons of eggs and onion who believed they will dominate that world forever, yes?
It has changed. Why? Because the time came and an excellent group of people led by Leo Melamed made this peaceful revolution.
And so will always be - every men-build privilege, rooted Egos, and humans wish to have it and not on real evolution, will fall. This is just an eternal law, the simple blink like humans life cannot prevent it from happening.

 

[SabreMan]

Margin of about $840mm? Who would take the other side? Yes, very large.

A few years the CME increased postion limits for ES from 100K to 140K contracts.
There must of been a reason for this, some traders(s) must of been getting close.
Unless it was done for the Plunge Protection team

As for some one taking the other side, you could build up 140K contracts in ES over the period of one trading session. You would need to buy about 360 contracts every minute. Although you might want to buy more near the open and the close and less during the middle of the day.

 

[sle]

Even a 140K lot position is not going to effect the market that much to enter and exit relative to your stop size.

LOL. Outright, that's pretty big, even for the big boys. First of all, assuming 50-100bps daily volatility in spooz, that's 90-180 million in daily PnL volatility which is not negligible for any one private institution. Also, 18 yards will sure move the market, no matter how careful and methodical you are.

A few years the CME increased postion limits for ES from 100K to 140K.
There must of been a reason for this, some traders(s) must of been getting close.

Large dealers frequently have large boxed positions that have negligible actual exposure. For example, carrying several yards in index basis is an everyday thing for most large delta-1 desks and most of the risk there is financing. Add the index vol desk and the structured desk and you could easily be pushing tens of billions.

 

[SabreMan]

Also, 18 yards will sure move the market, no matter how careful and methodical you are.

Ofcourse there will be some effect if you are buying 10% of daily volume over the course of the day. But how much? How many handles or basis points are you going to add to the closing price by buying 10% of the daily volume?

 

[dozu888]

Now, is that advantage OVER the retailers or AGAINST the retailers? The way I see it, it's all against the market. Institutions are often portrayed as adversarial.

what's the difference... in this game it's life and death.. the advantaged takes money from the disadvantaged.

 

[sle]

How many handles or basis points are you going to add to the closing price by buying 10% of the daily volume?

Obviously, the answer is "depends" and "uncertain". You can, however, conservatively estimate it as daily volatility times the square root of volume participation, though. So let's say 100-50bps * sqrt(0.1) making it 15-30bps at the low end. That assumes constant liquidity ahead of this supply.

In real life, you would add the algos front running the shit out of it, electronic MMs pulling their orders. The actual market impact for something like that can easily be in hundreds of basis points. A few HF liquidations that I've seen make this a plausible number

 

[murray t turtle]

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?

.

Yes, first; no on second, even when markets change.Some would consider it an advantage, not to admit to using a 200 day moving average; but it's hard to hide a herd of elephants, especialy when running or a stampede.....

 

[comagnum]

One advantage a large operator has is stop gunning, they sit on the ask or bid and pick off the stops. The thinner the liquidity the easier this is.

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.

Because they have deep pockets that can somewhat push the market around - letting the effect of their most recent trades lift the profits of their core position.

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

The major advantage they have is they get paid by their clients - if they win big sure they make a lot more but they still get paid well when they lose.

 

[deaddog]

Institutional advantages or the reason retail traders fail.

Better capitalized
Transaction costs
Discipline.

 

[quant1]

Institutional traders have:

- better capitalization
- better technology and market access
- ability to execute on razor thin margins
- ability to identify “edge” from randomness (harder to say how accurate this is as we move from arb into more fundamental/quant based trades)