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Retail Trader and Institutional Trader

Written by A Forex View From Afar on Monday, June 09, 2008

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The forex market is split between two types of traders, the retail traders, also known as the kitchen-sink traders, and the institutional traders

Most of the retail traders dream to reach an institutional level, praising and admiring those who already have done so. Well, my point of view differs a little, and I think that institutional traders should have a high regard for retailers too, especially for the full-time Kitchen-Sinkers.

Institutional traders are taken from the university’s desks, sometimes even before they graduate. They are trained to do damage in the market, to hunt the market for any flaw and profit from it. Do I also need to say that they get huge salaries for this? Whether they make money or not is irrelevant, the wages get paid.

Joe, our forex retailer, doesn’t usually have access to any Wall Street mentor, access to $2000 a month data feeds, nor access to people with more than just a few years of experience in the forex market. A vast number of retail traders were introduced to foreign exchange at a time when they have a family to support and kids to send to school. It’s hard to learn something completely new at this stage in life, especially to be investing into a completely new market, without expecting instant rewards.

One thing that needs to be accepted is that money does not equal reward, time and effort are the only things that equal reward. For those with no time to invest it is not that hard to loose some money in the first months as a retail trader. Those that have the money to invest but not the time initiate their forex trading life with a baptism of fire. That is not the way to do it, leverage and money management really hurt when they are abused. Most new traders ignore the 2% maximum risk at any one time, and most soon see that abusing leverage is a way to quickly compound what would otherwise have been losing trade into a trade that blows up an account. Time investment is not the same as Money investment, take care with that thought, it is priceless.

What is worse, in the case of a prolonged loss for a new retail trader, as they work their way past the trading demons each day, is they will have a negative account balance and nothing more to show for their effort. They become insulated and dread the cheery welcome as they drag themselves out of their trading cave; "Hello dear, you look tired. How did your trading go today?".

In that same time, in that same market, the institutional trader will still have his (outrageous) wages and nothing more than some comments from his bosses at the quarterly review. If the losses persist, the institutional trader may get fired, but only if he is doing worse than the others who are losing money, it is easy to hide on a trade desk.

Is not my mission to say trading at an institutional level is easy; all I’m trying to say is institutional traders should pay respect to retailers too. A large percentage of hedge funds reported losses this year, whilst the more experienced Kitchen Sinker's had no problem keeping themselves in profit.

So, the greatest respect needs to be paid the the retail trader, the faith that they have in their own ability to succeed is admirable, and worthy of more than a cursory glance from the Wall Street Wonders. Here's to you my Kitchen-Sinkers, you should be very, very proud of yourselves. Remember to Keep It Tight, And Never Give Up. KITANGU.

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There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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