Retail Trader? Why The Odds Have Been Stacked Against You From Day One

How Mis-Education Has Cost You Dearly

In this article let’s look at the motivation of an Institutional Trader (Bank) and a Retail Broker and see if we can notice some differences in their approach and their overall goals from their trading and yours.

When one becomes a Trader at a Bank or Institutional Broker we are given a mandate to make as much money for the company we work for, that is our primary function and objective.

It is in the best interests of a Bank to teach you how to make money, that’s how the business survives, how it makes its profits in both the short and long term, so as you can see the education that you receive is paramount to the future success of the company.

The training that you receive is on the job training, it’s done each day in the real world, there are no classes or courses that you must attend, this is real life.

So the level of education that you receive isn’t from a text book or a work sheet, it’s from people who have been doing the job for many years before you, and the knowledge that they pass on is priceless, you certainly wouldn’t get that level of education from YouTube or Google, it can only come from other professionals, and you just can’t find that information easily on the internet, it’s not out there and readily available, but it can be if you know where to look.

As in my previous articles you will understand that the banks trade using good old-fashioned Supply and Demand, or Cheap and Expensive, this style of trading harks back to the very early days of trading, as an example the London Metal Exchange (where I started back in 1994) opened in 1887 but can be traced back to 1571 and the opening of the Royal exchange in the City of London.

Since computers were a distant thing of the future ask yourself how on earth they traded? It cannot have involved Fibonacci levels, moving averages or a multiple time frames, because let’s face it, they didn’t exist, so how would of these traders have operated? Supply and Demand!

What was their function? To make money for the company that they worked for, and as we can see over 400 years later, this hasn’t changed, their primary functions are the same, and they would pass on their knowledge onto the younger generations of traders, and this is how it continues today.

An institutional trader is there to make money, pure and simple, is taught how to do this by his peers using tried and tested techniques that go back way into history and to then pass this knowledge on to future generations, so as you can imagine it’s a closed shop and isn’t like anything the education that 99% of Retail Traders receive.

So lets pause here for a second and think about Retail Trading and Retail Brokers.

Retail traders have been able to access the markets since the late 1990’s, so at a push just over 20 years, this means that the person on the street has been able to trade in the same markets that the Banks have been trading in since their inception, however the education as you can imagine was and continues to be vastly different on many levels, Institutional Traders are taught by their peers with long standing knowledge of the financial markets, Retail Traders are not…Simple fact.

  • Institutional Traders ARE the market, Retail traders are NOT.
  • Institutional Traders create the market prices that Retail Traders can use to trade from not the other way around.
  • Institutional Traders dictate where the markets are headed, Retail Traders do not and never can.
  • Institutional traders provide liquidity to Retail Brokers…. And this is where the plot thickens…

Mis-Education By Your Broker? 

Retail Traders must trade through a retail broker, and that’s where things become a heck of a lot different, see a Retail Broker makes money when you lose, so ask yourself are they really going to teach you how to take their money?

Think about if for a second, they offer free education, webinars, seminars, video courses etc, they want to educate you? They will also work in conjunction with other “educational providers” who stipulate that to complete their course you must open an account with said broker, these are known as IB’s or Introducing brokers, who by the way earn money from you every time you trade.

What is a Retail Brokers Business Model?

They want to make money; how do they make money? Simple! When you lose. So if they can teach you how to lose money but disguise it as “education” then it’s no wonder at all that those of you who read the findings from the F.C.A regarding trading by Retail Traders in CFD’s that over 80% lost money, good business for the brokers, but not good business for the Retail Trader, not good at all.

Added to that, if you know that 80% of your clients are going to lose 80% of the time then surely it would be a good idea to trade against your clients, in the knowledge that you have a fantastic opportunity to profit from your clients loses.

Slight Of Hand

Think of a magician on stage, he isn’t the one catching your eye, your eyes are focused on the assistant in the shiny outfit prancing around on the stage, you’re not meant to notice the magician, your focus is directed away, so you look in the wrong place, it’s done on purpose.

Assistant = Indicators, Chart Patterns, Trend Lines, Short Term Time Frames

Magician = Banks and Institutional Brokers

Look your indicators all brightly coloured, chart patterns that you search for hours to find etc, you’re taught to look in the wrong direction, taught not to look at the price but rather to trade based upon a pattern or an indicator reading, you don’t care what price you get, you just know that you must trade, or you’ll miss out.

So, if you don’t care what price you’re trading from, how can you know if it’s cheap or expensive or how can you know what value the Banks are placing on that price?

Here’s a thing, you’re taught not to care and that falls straight into the hands of the brokers, they rub their hands with glee.

So how have the retail brokers been getting away with this for so long, well a regulatory body like the F.C.A is unfortunately reactive and not proactive, this type of mis-education should have been picked up on long ago, but alas it has taken a very long time to happen, but it can only be a good thing in my eyes, this is why the new rulings of the ESMA must be welcomed, the Brokers must have been waiting for this for a very long time.

Mis-education has cost you money, time and a belief that you can succeed at trading, the odds have been stacked against you from day one, so it’s no wonder so many people cry foul of trading as a retail trader, the information available to you is poor, the understanding of how the markets really work from so called “educators” is quite frankly shocking, they don’t understand how the markets really work so how on earth are they going to educate you correctly, they can’t so they hide behind indicators, chart patterns, trend lines and looking at the markets on very short term time frames.

If you are currently trading using these “Retail” trading techniques or are looking to take a course that consists of these techniques then my own personal suggestion is that you stop, take a step back and ask yourself just who is your “Tutor” what is their background, have they worked at an institution, are they the right person to teach you how to trade?

Education about trading in the financial markets from people with real life experience of trading at the top level is scarce, most don’t leave their jobs at the banks, they stay on until retirement age and then sail off into the sunset, you can’t blame them, so getting the education you really need isn’t the easiest thing to do, but it really is very important.

Thank you for taking the time to read this article.