Yeh. It would be more accurate to say something like this:
A retail trader will usually be trading with some sort of market maker. That market maker will also trade with informed traders, and sets their bid-offer spread accordingly to offset this adverse selection. So the retail trader is paying a bid-offer spread that is the result of other informed traders in the market.
Of course, as a retail investor you may have access to a broker (e.g. Robinhood) that tries to exclude informed traders so it can set a lower spread.
There are market-maker intermediaries in between but structurally you're playing the game primarily against professional finance teams with massive amounts of research, automation, and up-to-the-microsecond information you don't have access to who are the ones actually setting the price.
It's not either-or. You're right you're mostly trading with a market internalizer, which is pocketing the spread (ie. bid: 10.00, ask: 10.05) but isn't really making money on price movements. However, you're still against hedge funds/banks for medium/long term price movements (eg. you buying a stock after they pumped it, and selling after they dumped it).
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For retail traders, isn't it overwhelmingly likely that you're just going to trade with the inventory of a market-neutral internalizer?
Yeh. It would be more accurate to say something like this:
A retail trader will usually be trading with some sort of market maker. That market maker will also trade with informed traders, and sets their bid-offer spread accordingly to offset this adverse selection. So the retail trader is paying a bid-offer spread that is the result of other informed traders in the market.
Of course, as a retail investor you may have access to a broker (e.g. Robinhood) that tries to exclude informed traders so it can set a lower spread.
There are market-maker intermediaries in between but structurally you're playing the game primarily against professional finance teams with massive amounts of research, automation, and up-to-the-microsecond information you don't have access to who are the ones actually setting the price.
It's not either-or. You're right you're mostly trading with a market internalizer, which is pocketing the spread (ie. bid: 10.00, ask: 10.05) but isn't really making money on price movements. However, you're still against hedge funds/banks for medium/long term price movements (eg. you buying a stock after they pumped it, and selling after they dumped it).