Institutional Traders And Their Techniques

institutional traders

The traders are usually separated into two main categories in the Forex market according to their purposes and trading volume. One is the retail traders who are basically small investors trading only for their trading account. The other group is called the institutional traders who manage a fund on behalf of a group and organizations and trade in the way that everyone benefits under the umbrella. The position of the institutional investors requires them to build a powerful decision-making strategy. However, with great power comes great responsibility. If they make a nonadvantageous decision which may result in a big minus on their clients’ account, they face the probability of losing their source of revenue or decreasing credibility. To avoid unfavorable consequences, they use some solid techniques which can be improved by experience and hard work. 

  1. Technical Analysis

Technical analysis has become the most popular tool in the Forex industry over the years among both retail traders and institutional traders. 70% of all traders use technical analysis as their main strategy, while the ratio is 93% for institutional traders. The difference comes from the fact that institutional traders have more time and better infrastructure to look at the charts and analyze them deeper. Additionally, they have access to valuable information from top-class executives and managers. By combining the knowledge and expensive products, they smooth their trading decisions via technical analysis.

  1. Algorithmic trading

As you know, algorithmic trading is automated trading that uses software to place and execute different types of orders based on the instructions stated by the trader. Since the institutional traders have a high level of budget to manage all the funds they got, they can work with professional developers to write their own algorithms. In this way, they can guarantee that their emotional condition is taken out of the trading formula and they make the transactions over the system that is shaped by big financial data and preferred indicators. 

  1. Creating Liquidity 

Institutional traders usually have an enormous amount of capital, so they need a liquid market to execute their trading ideas. To buy or sell thousands or millions of shares in a limited time, they have to catch a demand on the other side of the trade. If they cannot find enough liquid assets, they can manipulate the market in order to change the trading behavior of the other traders. One popular method is stop hunting, which can be described as lowering the prices and triggering clustered stop-loss orders.

SEE ALSO: Institutional Traders vs. Retail Traders: The Differences

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