Professional vs Retail Trader: Why Retail Trading Is Becoming Popular

Two years ago, an unusual phenomenon changed the way we look at trading. GameStop Corp., a struggling company, witnessed a meteoric rise in its stock price. It was fueled primarily by retail traders who banded together against big institutional investors. The result? GameStop’s stock, which was trading at $19, rose sharply to $483. The situation brought a new perspective to trading—that anyone can be a retail trader and make a profit through trading.

A retail trader has become an important participant in financial trading. With more innovations and low entry barriers, it’s now easier than ever to become a trader.

GameStop’s rise has shown the potential of trading and its benefits. However, many people still confuse professional trading with retail trading. Let’s find out what these terms mean and which one could be the best option for you.

stock chart
Source: Unsplash

What Is Professional Trading?

Professional trading is also known as institutional trading. It’s the buying and selling of financial assets by institutions using their traders. There are many subcategories of professional trading, such as foreign exchange (forex), cryptocurrencies, institutional equity trading, and institutional options trading.

Professional or institutional trading is mostly done by large companies, where they hire analysts and operators to work together and analyze the trades. To operate at such a high level, institutional traders invest a massive amount of money that brings in huge returns. However, this can also lead to massive losses. That’s why professional trading platforms hire full-time technical analysts and fundamental analysts. Their purpose is to drive trading strategies to achieve growth and avoid big losses.

Unlike a retail trader, a professional trader works for a financial institution and is directly engaged in investing. That said, professional traders can also invest as a business or even as a hobby. Whether they work for someone else, themselves, or a wealth management firm, their goals are similar. However, the education, experience requirement, and capital might be different.

How Does Professional Trading Work?

By trading large volumes, institutional traders can potentially influence the price movement of trade. That’s the power of a professional trading team. This battle is often fought between big institutional traders who try to control the market and maneuver the asset’s price to their liking.

It’s an all-out war, but asset prices also play an important role in trading. However, the main question is how professional traders control trading. It isn’t easy, but if they think a market has the potential to rise, they enter it like any other retail trader. However, by investing a large amount of capital, they can change the trajectory of an asset or a trend in the financial market.

There are two types of professional traders: day traders and swing traders. A professional day trader is someone who opens and closes their position within 24 hours. This is a common type of trading.

A professional swing trader works positions over multiple days to get a profit from long-term market fluctuations. A swing trader focuses on long-term profit, while a day trader focuses on short-term profit.

professional trader
Source: Unsplash

Pros of Professional Trading:

Potential to Generate Massive Profits

With professional or institutional trading, companies hire the most qualified traders for the best performance and return on investment (ROI). If you’re looking to become a qualified trader, you’ll need years of practice before a trading company will hire you. However, if you join their team of qualified traders, you can make massive profits.

Accountability Benefits

Since there are teams with full management, there are many accountability benefits to professional trading. This is because companies hold their traders accountable for results and performance. This increases competition and makes the overall structure more productive.

Improved Price Discovery

This is another major benefit of professional trading. Institutional traders invest a huge amount of time and resources in discovering the best possible price range to enter and exit the market.

Cons of Professional Trading:

Not Ideal for Beginners

One of the biggest cons of being a professional trader is that it’s not as well-suited for beginners as being a retail trader is. This is because the performance bonus is a big part of a trader’s salary. If a trader performs poorly, they’ll get little return for their hard work.

Moreover, a bad trader may not even receive their performance bonus at all. Everything depends on the experience and knowledge of a professional trader.

No Consistency

For traders, there’s less consistency in professional trading when working at a firm. As their salary is tied to the amount of profit they make, their trading strategy should always be top-notch so they can make a good amount of money. Simply put, it’s harder to make consistent profits since the financial market is quite uncertain at times.

What Is Retail Trading?

A retail trader also invests in forex, cryptocurrencies, and more. However, they have less exposure than institutional traders. Retail traders trade with their own money by buying and selling assets. They open personal accounts, or PAs, to start trading. Unlike a professional trader, who works with other people’s money, retail traders don’t work for a professional organization and usually put their own money at risk.

Retail traders often don’t pour in a lot of capital, so their profit volume is low. Moreover, there are times when retail trading can require more upfront investment than other trading types.

Just like professional traders, there are various types of retail traders as well. Let’s learn more about how retail trading works.

retail trader
Source: Unsplash

How Does Retail Trading Work?

A retail trader typically starts by opening a brokerage account with an online or traditional broker. Many types of online brokers offer several benefits to traders, including a hands-off approach to building their financial portfolio.

Retail investors transfer their money to the brokerage account to make trades on their behalf. They buy or sell assets such as forex and cryptocurrencies themselves.

Retail traders often pay greater transaction costs since they must utilize a broker, who normally charges a set fee for each trade. These brokerage firms are often significantly smaller than the giant investment banks that serve institutional investors.

Retail trading is quite flexible since traders can trade multiple assets to expand their portfolio (although this is not advisable for absolute beginners). Experienced forex traders, for example, open multiple positions at the same time. For beginners, however, trading only one currency pair is a much better option, as the risk margin is lower.

Overall, retail trading can be a profitable profession, but how much money a retail trader can make ultimately depends on their skill set and market conditions. In general, a retail trader can expect to earn a few thousand dollars a year when starting out. This also depends on how skillfully they follow trading strategies and keep up with market news. It can be a rewarding job for individuals who focus on and understand the ins and outs of the business while honing their craft.

However, you can’t expect to succeed in retail trade solely for financial gain. This means you shouldn’t trade to pay your bills. Instead, complement your trading revenue with another source of income, at least in the beginning.

Strategies for Success

Trading should only be done with extra money. There are various ideas and techniques to follow if you want to be successful in retail trading. Among the most prominent strategies are:

  • Identifying Your Risk Tolerance: This is one of the most crucial parts of trading. Before you enter a trade, you should know how much risk you’re willing to take on.
  • Making a Trading Strategy: Your admission and exit criteria, as well as your risk management strategy, should be included in this plan. This also includes committing yourself to deep research on the currency.
  • Maintaining a Trade Journal: This will allow you to track your progress and discover areas for improvement.
  • Creating a Network of Support: This can be accomplished by joining a trading community or locating a mentor.

Pros of Retail Trading:

Unique Portfolios

As a retail trader, your portfolio can be diversified since individual investors can invest in different currencies at the same time. Moreover, this can also minimize the risk of losing a lot of money because your investments are spread across various investment channels.

Many traders go through the problem of investing a significant amount of money in one type of forex or cryptocurrency symbol. If the symbol crashes, their money will crash as well. However, if the money is spread across various channels, it will be almost impossible for a trader to lose all the money.


The retail investment market is more accessible to people who don’t want to join big firms. Professional trading is mostly accessible to big organizations, high-net-worth traders, and businesses. For individual traders, retail trading is a better option.

Freedom and Control

Retail investors have a lot more control than professional traders. They can not only choose their assets but also diversify their portfolios according to their liking. If you want complete control over your investments and where they’re invested, then retail trading will be ideal for you.

Cons of Retail Trading:

Higher Cost

Since retail traders have complete control, they have to deal with the repercussions as well. It comes with a high risk of losing your hard-earned money. A negative trade can potentially wipe out your investment. The high cost also includes trading fees. A good trading strategy and solid market research are required for retail trading.

Constant Research Needed

Retail traders are accountable only to themselves. They don’t have any support until they join hands with a professional or prop trading firm. This means they must do their own research and stay constantly up-to-date with currency movements.

Why Is Retail Trading Becoming Popular?

Retail trading has become more popular because prop trading firms have made it easier for traders to speculate in the forex or crypto markets. Anyone can own currencies and digital assets like Bitcoin or Ethereum or trade forex pairs. They could be students, office workers, self-employed professionals, or stay-at-home parents. Even for people who have no trading background or specialized training, the financial market is completely accessible. There are no barriers to becoming a retail trader.

In the past, high-net-worth individuals dominated the forex market. However, that’s not the case anymore. Amid the COVID-19 lockdown, there was a sharp rise in interest in forex and crypto trading. As the GameStop incident showed, retail traders are no longer afraid to enter the market dominated by institutional investors. There’s never been a better time to be a retail trader.

There are plenty of educational resources available, and there are now several opportunities to get funded. This means you don’t have to invest your own capital. Instead, you can open a demo account with a brokerage firm. If you prove your worth as a trader, the firm will lend you its own funds on a profit-sharing basis.

Start Trading With The Funded Trader

Retail trading is now accessible to everyone. It’s easier than ever to start trading, and there are several firms that ensure individual traders aren’t left on their own when starting out.

While retail trading appears to have a big learning curve, there are prop firms such as The Funded Trader that provide traders with an opportunity to learn, polish their skills, and prove their worth. Traders can even get a funded trading account after passing their challenge.

If you want to leverage a platform that offers great benefits to traders, check out The Funder Trader today.