Professional Traders vs Retail Traders

     Everybody knows that 90% people loose money in the stock market. However do you know what this combination means "90/90/90"? Have you ever seen this before? This is industry statistic that is always talked about. It stands for 90% of Retail Traders loose 90% of their money with in 90 days. However, the objective of traders is to make money. The main difference is the approach.

     The holly grail for Hedge Fund manager is to grow his fund. For example: manager has $100 million in assets in his Hedge Fund in year one, by year nine he has grown his fund to $1 billion. There will be value in this fund. There is standard industry metric that applies to selling fund. It is 1/10 of the value of the hedge fund. So they will sell that fund for $500 million. So they grow their fund from $100 million to $1 Billion and then sell it for $500 million and walk away- that is considered to be successful Hedge Fund manager. What is the lesson here... Hedge Fund managers use their own money to start and grow the fund, investment bankers do not use their money. So the Retail Trader has things that are in common with Hedge Fund manager. However there is a difference, Hedge Fund manager get's payed income salary, Retail Traders trade for income. This is how Retail Traders work. Let's say they make $10,000 in one month. Then they take out the money that they got for that month and spend it. In second month they loose $10,000 and then they take out some money from their trading account and spend it. So what it comes down to? When they make money- they take out money from their trading account, when they loose money- they take out more money from their trading account, therefore increasing risk. Retail Traders do totally opposite of what professional traders do. You should never ever take income from your retail trading account. It is not an income strategy. If you want an income strategy buy a bunch of stocks with dividend yield and hold them for decade. Go buy a property and rent it out to somebody. Go buy government bond, they will pay you an income. Trading is not for income, and every professional trader knows that. They know that this strategy is not for income, their objective is to grow their account to as big as possible so they can sell the fund. That is why they do not take any money of the trading account, they are reinvesting it because they want to grow their account to as big and as quickly as possible to sell their fund for as much as possible. They make money- reinvest. Loose money- don't increase your risk. The only problem is to misinformation and conflicts of interest that exists in this industry, vast amount of retail traders do not know these strategies.

#tradethetruth