Can the Average Joe Algorithmic Trader Still Succeed?

It’s normal for a beginner algorithmic trader to question whether it is still possible for them to compete with the large institutions and wealthy traders with all the state of the art tools. But what I want to share in this article is the fact that institutions are trapped within a very strict regulatory environment, organisational structure and they must maintain investor relations which are a huge disadvantage that gives the retail algorithmic traders an edge.

The capital and regulatory environment forces institutions to do things a certain way which creates predictable behaviours and wave like patterns in the stock market each month. The AlgoTrades algorithmic trading system is designed to identify when these are happening and to take advantage of them. We will discuss some of these algorithmic trading strategies in future articles. Let’s highlight some of the advantages the beginner algorithmic trader has over the institutions and large funds.


Algorithmic Traders Big Advantage

The algo trader can compete with the institutions:

Market impact – A retail algorithmic trader has greater freedom to navigate the markets because their volume size is so little it does not move the market, while institutional funds can’t do this.

Risk Management – Individuals algo traders often take a different approach to risk management than what the institutions and large funds must follow. It is often advantageous to be “small and nimble” when it comes to risk.

However, with individuals having the flexibility to do whatever they please when it comes to risk it can lead to retail algorithmic traders to becoming “sloppy” and be very costly.

Investor Relations – Institutions are plagued with the want and need to satisfy share holders. While the individual algo trader is only focused on absolute returns on their account, the large firms have complex compensation plans, regulations and reporting constraints, performance fees, and are trying to beat key benchmarks. These cause firms to lose focus and be counter productive for their long term trading results.

Technology – One area where the retail algorithmic trader is at a significant advantage is in the choice of technology for their trading system. Not only can the trader pick the “best tools for the job”, and construct an end-to-end backtesting, execution, risk and portfolio management system with far fewer lines-of-code (LOC) than may be needed in a more verbose language which large firms would use.

In conclusion, the average Joe algorithmic trader possesses significant advantages over the larger firms. Potentially, there are many ways in which we take advantage and exploited what the big volume firms are doing. Later articles will discuss some of the algorithmic trading strategies that makes it so unique and powerful.


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