Mind The Gap

Abstract

This paper examines the differences in trading techniques utilized by retail and institutional investors. More importantly, this paper analyzes the use of quantitative trading techniques such as algorithmic trading as a potential difference-maker for many retail investors. Algorithmic trading is considered a valuable tool among institutional investors for its ability to help investors make split-second decisions using a large number of data. Historically, institutional investors were able to concentrate resources in ways seemed unobtainable to many retail investors. Expensive data aggregators; real-time information feeds; news updates; capital requirements; and the like, are resources institutional investors are only able to enjoy. Technological innovations granted individual investors access to a plethora of financial markets and strategies once available to only the most sophisticated investors; translating in lower transaction fees for many retail investors. On the other hand, large financial institution can afford to hire the best and the brightest their investment goals, many ordinary investors are being left behind. As financial markets become more sophisticated and complex, most individual investors look to the passive investment strategy, as a way of eliminating many of the barriers of learning to trade. Is it possible for retail investors to close the gap by learning the algorithmic approach?