Professional Traders vs Retail Traders, and the Misconceptions

professional trader vs retail trader

There are plenty of misconception about the differences between a Professional Trader, and a Retail Trader (Independent). And many do not know the distinct differences how the Professional Traders approach the market that their Retail counterparts don’t have to consider. Let’s take a look.

Professional Traders vs Retail Traders

First, the majority of the professional traders are working for someone else. This means that they have what is known as a fiduciary responsibility to their clients, and to their funds. They must, at all times, act in the best interest of their clients at all times. This means that choosing between risk and rewards, managing risk takes precedence in order to preserve the client’s principal.

Second, professional traders don’t get paid unless their clients get paid (Performance Fee). This is aside from the annual management fee that is charged to the client’s investment fund. While this can be stressful, it is the only way to keep the professional traders focused on what’s important – making their clients money. This philosophy creates a spirit of cooperation in which everybody wins. If the client doesn’t make the money, then the trader doesn’t make money.

Finally, professional traders are looking for returns that are meant to beat stock and bond returns, not necessarily to break the bank. For anyone who has ever played baseball, you know that you don’t hit for the fences every time you are up at bat. In fact, you always take into consideration what has happened before and what will happen after your turn. That might require you to be conservative or loose with your play, depending on the situation. Trading is no different. historically stocks have returned 10% annually and bonds have returned 7%; any system that beats these returns is considered a success.

The ability to set aside greed is one of the professional trader’s biggest assets. If done correctly, setting realistic goals does not hinder opportunities; it simply diminishes the need to take unnecessary chances for unlikely reward.

When a retail trader recognizes that he has a responsibility to himself, pays himself from his profits, and make greed take a backseat to the reality of the situation, he has taken some solid steps to trade like a professional.

Misconceptions about Professional Traders

As a independent trader,  the secret to transiting to a professional trader is not about how much money you bring to the table, but the key is about a combination of your motivation, how you deal with the money you have, and your mindset. From the outset, you must ask yourself this key question,

“Are you more interested in being right, or being profitable?”

The stage is set for your ultimate success or failure depending on how you answer this question, and your answer will guide your motivations, how you manage your capital, how you mentally approach the market, and managing the expectation of every outcome in your trade.

Many retail traders assume three things about professional traders that are simply not true.

  1. They assume that almost every trade that professional traders pick is a winner
  2. They assume that it takes a lot of money to be a professional trader
  3. They assume that professional traders are secretly doing something that can’t possibly be done be retail traders

None of these assumptions is correct, and in fact we see time and time again it isn’t the number of winning trades you pick, how much money you have that makes the difference.

It is how you behave.



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