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Learn to Trade

How Can I Become Like Institutional Traders?

By Louis H-P on September 26, 2018

Reading Time: 4 minutes

Trading securities can be as simple as pressing the buy or sell button on an electronic trading account. This is performed by many different traders, such as retail and institutional, every day. Yet what is the difference between retail and institutional traders? Examples can include the level of sophistication and the speeds at which trades are executed. Execution-only traders who take orders for clients, better known as dealers, are only concerned with executing an order. 

Retail & institutional trader differences

Retail and Institutional traders both watch the marketThere are two basic types of traders: retail and institutional. Retail traders, often referred to as individual traders, buy or sell securities for personal accounts. They often use price action trading, candlestick patterns and  will day trade. Institutional traders buy and sell securities on accounts they manage for a group or institution. There are many key differences between the two trading groups. These differences revolve around the costs per trade, and the level of information and analysis each receives. While some differences still exist, this has significantly narrowed. Institutions maintain advantages such as access to more securities (IPOs, futures, swaps). They can also negotiate lower trading fees and the guarantee of best price & execution.

Steps to becoming an institutional trader…

Traditionally, if you wanted to become a institutional trader you would start by getting a university degree in something like finance, IT, mathematics or accounting. Then you’d get a job with a bank and cut your teeth working on the trading floor before progressing up the chain. Today starting as retail trader can give you the basics to learn the following steps faster!

Know the rules of the game

Institutional trading is a game and you need to know how to play it. When markets go down, retail traders panic and sell. Whereas institutions are aggressively buying! Although catching a falling knife is risky, a pull-back/correction/sell off is a chance to buy an asset on sale. You wouldn’t buy a car today if you knew you could get 10% off in the sales next week?

Don’t wait for confirmation

Institutional traders are quick to react when prices fallPeople want confirmation. They are willing to increase the risk and decrease the reward for it. Retail forex traders often want different indicators to line up properly to give them confirmation. Do Institutional traders wait? No they don’t! When a price is down at a level where banks and institutions are buying, then hesitation is not an option. If you wait for confirmation or reversal, all you are doing is increasing risk and decreasing the reward. Big investment banks don’t wait for prices to rally before buying. They apply a quote originally attributed to Warren Buffet: They are greedy when others are fearful.

Institutional traders are weary of leverage

Institutional traders focus massively on risk management and rarely use leverage. If they use leverage they are very careful about not risking more than a small percentage. Retail traders look for Forex brokers that offer 200x, 500x, or even 1000x leveraged trading accounts!

Retail traders get the idea that if they really leverage up their trades they can turn something like $500 into $100,000 quickly. It is doubtful that a new retail trader has the skills and training necessary to pull that off. They typically leverage up without considering that they might just lose their $500 much faster with more leverage.

Information advantage

Institutional Traders value their Bloomberg terminalsInstitutional traders pay top dollar for the fastest news feeds and audio squawk services available. Examples of these are the two most well-known; Bloomberg and Reuters. They do this in order get market moving news and information faster than their competition. Retail traders typically avoid news events and pay very little attention to economic data releases. Trading patterns and technical systems typically fail during these times.

Sell yourself to Institutional funds

Today, banks hire a tiny fraction of the traders they once did. With fewer opportunities through the corporate pathway, retail traders are the next generation of institutional traders in waiting. Some firms provide a link between talented retail traders and institutional trading. They provide capital funding, mentoring and professional networking to help top retail traders reach institutional levels of performance and pursue a career in trading.

Controlling your mind and emotions

Institutional traders know to control their emotionsInstitutional traders focus heavily on developing and maintaining a healthy trade psychology. This keeps them razor focused on the things that matter the most to their trading in real time. In fact, many institutions pay to have in-house psychologists on staff to keep their traders mentally sharp and focused. Retail traders focus on systems that attempt to remove trading psychology and hopefully have a win rate of 100%.


The trading advantage that institutional traders had over retail traders has dissipated with the advance in technology. This includes the accessibility of sophisticated online brokerages and to trade in more securities. The ability to receive more real-time information and the widespread availability of investment data is now routine. This has narrowed the gap that had once been widely in favor of institutional traders. For those wanting to play with the big boys, learning the basics as a retail trader will help you grow into developing institutional trader skills! This can only have the benefit of turning you into a Better Trader!

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Louis H-P

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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About author

Louis H-P

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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