Key Takeaways
- Professional traders have faster access to information and execution
- Order flow data gives market makers visibility into retail behavior
- The "edge" retail traders think they have is usually already priced in
The Information Gap
Client Question: "I do my research—doesn't that give me an edge?"
One of the hardest truths for day traders to accept: by the time they see information that seems actionable, it's often already reflected in the price.
The Speed Hierarchy
Information and execution speed in markets follows a clear hierarchy:
| Participant | Information Speed | Execution Speed |
|---|---|---|
| HFT Firms | Microseconds | Microseconds |
| Institutional Traders | Milliseconds | Milliseconds |
| Professional Day Traders | Seconds | Seconds |
| Retail Day Traders | Seconds to minutes | 100+ milliseconds |
When a retail trader sees a price on their screen and clicks "buy," the trade takes 100-500 milliseconds to execute. In that time, HFT firms have already processed thousands of trades.
What "Priced In" Really Means
When news breaks—an earnings report, an FDA decision, an economic indicator—here's what happens:
T+0 milliseconds: News released T+1-10 ms: Algorithms parse the news T+10-100 ms: HFT firms adjust quotes and execute trades T+100-1000 ms: Institutional traders react T+1-60 seconds: Retail traders see it and decide to act
By the time a retail day trader places their order, the price has already moved to reflect the news. They're buying after the information is priced in, not before.
Order Flow: The Hidden Information
When brokers sell order flow to market makers, those market makers gain unique visibility:
What market makers can see:
- Aggregate retail buying/selling trends
- Which stocks retail is interested in
- Order sizes and timing patterns
- Sentiment shifts before they're obvious
What this means: If retail traders are heavily buying a stock, market makers can widen spreads or adjust inventory. They're trading with knowledge of retail behavior that retail doesn't have about themselves.
The Illusion of Edge
Many day traders believe they have an edge through:
| Claimed Edge | Reality Check |
|---|---|
| Technical analysis | Patterns visible to everyone, including algorithms |
| News trading | Algorithms parse news in milliseconds |
| "Feel" for the market | Confirmation bias often disguised as intuition |
| Social media tips | If it's public, it's already priced in |
The Efficient Market Challenge
While markets aren't perfectly efficient, they're efficient enough that consistently exploitable patterns are rare. When patterns do exist, they're usually:
- Too brief - Algorithms exploit them in milliseconds
- Too small - Transaction costs eat the profit
- Too inconsistent - Work sometimes, fail other times
- Too crowded - Others trading the same pattern eliminate the edge
When Information Asymmetry Hurts Most
Day traders are particularly vulnerable to information asymmetry during:
- Earnings releases - Institutions have analyst relationships and models
- News events - Algorithms parse faster than humans can read
- Options expiration - Market makers have visibility into positioning
- Low volume periods - Easier for informed traders to move prices
Professional Framing
When clients believe they have an information edge:
"The challenge with day trading isn't finding information—it's that the same information is available to algorithms that process it in microseconds, to institutions with teams of analysts, and to market makers who can see order flow. By the time you see something that looks actionable, the question isn't whether you know it—it's whether you're the last one to know it."
When major news breaks, who is typically LAST to react and adjust their positions?