This is how Hedge Funds and Banks REALLY trade! (Wall Street scalper reveals)

What is a really way of the institutional traders, of the big hedge funds, of the big players? If you want to know how the way they trade, how they combinate the intelligent size of trading, then listen, because today I will give you a lot of explanations how they trade, how they follow the global money and what is a really way of trading from big players. Because I think it is so important in the retail space that everybody understands the rules of Sam and listen to me, I give you a big explanation about it and I think you will love it. You have to know I translated this video with AI because my English is not perfect, but I think you will love it.

So, dear friends, a wonderful good day from the House of Trade. The traders today once again in Lanaka, together with Surgeon Tom. Today we want to tell you a bit about what really goes on behind the scenes at the big institutional players. How does global trading work? And just how small are the fragments that we day traders actually represent. And yes, that's what I'd like to chat with you about today. You brought quite a bit of experience with you back then from America. I've also gathered some experience myself and first I'd like to talk a bit about what the truth is. I've personally dealt with people who managed funds with volumes of 15 to 20 billion euros. And I listened to how the whole process actually works. And I can tell you we day traders sometimes think we are the center of the universe, but we're actually so, so small. The truth is that the large capital flows, the big streams of capital, they take a lot of time. And the big institutional players, whether they're money market funds or anything else, they have completely different investment strategies than what we retail traders actually think. For example, we use futures markets, which are actually meant for hedging or securing goods, commodity futures contracts, but we misuse them for trading. And with that we don't even make up 2 to 3% of the entire market out there, which is ultimately controlled by global money. And maybe a quick story about this so you can get an idea. When large institutional pension funds or similar entities take positions in the markets, it sometimes takes them several days to route their orders. And that works to our advantage as day traders. Maybe you could talk a bit about what it was like for you in short term trading, what advantages you were able to gain for yourself when you knew that such transactions were taking place, or rather when you could read that something like that was happening, you can.

Say, because I basically turned that to my advantage or made it my little edge, so to speak. Because when you see that big funds, or just generally someone big is buying in, it gets reflected sometimes also in the markets. For example, in a time and sales, or as I said in the order book, you can draw conclusions from that. For example, whether someone is just closing a position or actually building one up. And if you've seen this happen, as they say, it can go on for hours. And in certain markets, like government bonds, for example, you can sometimes actually see, really see that over a certain period of time, maybe it's more likely that there's a rhythmic system behind it which basically dictates that every few minutes or every 30 minutes, a certain number of orders must be placed into the market market. And if you can recognize this, you can take advantage of it for yourself and depending on the context, use it to your own benefit in trading.

So what might also be interesting to hear are some stories. These aren't fairy tales I'm telling now. There are traders who get into the elevator. They wait until the elevator starts moving. So these aren't day traders, but rather large traders who have positions to handle in the markets. They have to route positions to the exchanges, which ultimately are to be invested in the capital market because client funds are flowing in or waiting, whatever the reason may be. And he gets into the elevator and waits. And when the elevator goes up, he sells the positions he needs to close out today. And when the elevator goes down, he sells off the positions he needs to get rid of. So he already knows which positions he needs to build up or reduce. But that has absolutely nothing to do with smart intelligent trading like we do, where we have to gain an edge. These guys, for example, there are so called index trackers. Such index trackers replicate an index. They're not allowed to trade a DAX future for more than seven years because then they'd have to keep rolling it over every three months you have roll losses due to interest. There used to be such a thing, interest rates. And you just have to know that when these index trackers replicate an index, they simply buy, for example, in the DAX, those 40 stocks according to their respective weighting based on the volume they bring in. And what does that mean for US traders? For US traders, it's great to see when we can use exactly these mechanisms for ourselves. And notice that similar orders of similar size keep coming into the market, because those guys don't put in a lot of effort. They just have to position it on the market. And if the market suddenly starts running in one direction or the other, they run along with it. And what I'VE noticed very often is that in the closing auctions, you can always clearly see whether they're done or not. And you can trade great gap strategies there off exchange. For example, when you see that at the closing price, they've pushed another 60% of their total volume into the market. And as a result, of course, a price gap has emerged because they didn't get it at a single price. And you can then trade something like that back to the original value. And these are the kinds of strategies that we traders can take advantage of if we master this. You know, those are just my experiences. And of course, there's a lot, lot, lot more to it. But what really matters is what can we traders do with this, and what advantages do we have if we really understand and penetrate the whole system? On a deeper level, both of us have had the chance to get to know institutional trading environments, and it's just different there. Most retail traders know candlestick patterns. They know about order, flow and footprint these days, which doesn't hurt. But they don't really know what's actually going on behind the scenes. And how is it for you? Is it helpful for you to have a deeper understanding of what the big market players are doing, or do you not care about that at all?

Well, I'd say for state trading, it's not that important. But I still want to understand the mechanisms behind it. After all, it's a job that I do. It's not just a hobby or something like that. And in any job, you have to understand all the mechanisms behind it. So even if you're doing day trading, you should understand how the big players think and act, how the processes work. Because that way you can also see all of that reflected in the market. Because otherwise you see something and think. For example, just as an example, here's a little gift for you. In an order book, if you see a huge order appear and the market keeps moving away from it, and that big order keeps chasing after the market, then you know there's someone behind it. That person now has to build up a position or get out of a position. And if I understand what's happening there, because you might think, oh, a big order, that's good. But in most cases like this, it's usually because someone has gotten into trouble and now needs to exit the market. Of course, they're trying to get out at the best possible price. And other participants see that too. And of course, the algorithms are also watching all of this, sometimes even getting involved. And the market always moves away from it at some Point you see that they start to really, really push large volumes very close to the market, sometimes even forcing big trades at market price. And then you know what needs to be done in that situation. And that's the background knowledge. You need to recognize that someone is actually in trouble right now. Not just someone who's buying most of the time. There's a margin call or something similar behind it.

Yeah, that's also interesting to know. There are also a lot of big players who aren't exactly gigantic. We're not talking about Merrill lynch and the like, but rather, let's call them smaller investment hedge funds, whatever kind of firms those are, sometimes they really mess things up, too.

Yeah, of course.

And that's totally underestimated. And when we see that kind of mess happening when some freaks are forced to dump their positions into the market, that's basically free money.

And if you understand all these things, then you'll also understand never stand in the way of a train like that when something like that gets going. Like back then when that French guy, Jerome Servee, or whatever his name was, invested a few, I don't know, billions into the DAC's future. Whether it was really him. Let's leave that open for now. We don't know. That's just the story. Yes. When a story like that takes off, it really takes off, and there's just no point in going against it. You just have to wait until you can see that it's over. And here's a tip for you. Most of the time in the closing auction, if another extreme is reached there, you'll see a gap down at the open the next day, and then things start to reverse. And that's when you can short. You always call that from green to red, right?

Yeah. Yeah.

So if the market closes really strong and the next day it goes back into the red, then it just makes sense to take a contrarian position. And there are just so many great strategies for that. And there are also a ton of dirty tricks. If we look at penny stocks, for example, that's manipulation to the max. And for smart traders, it's easy to trade with that. But of course, the risks are high.

Exactly. But you understand the background of the intervention. If you pick any penny stock, no idea one that's been hyped up, and you just expect this parabolic rise, like you say, like I always say, it just keeps going green, green, green. And then suddenly the next candle shoots up and then it switches to a red candle and trades of the previous day's candle. Yeah. Then we can already start to say that these kinds of situations, but you really have to, as you said, understand what's behind it, the whole topic. Like what is a hedge fund anyway? Or if you ask yourself what even is a hedge fund, then most people don't even know what a hedge fund is, what its purpose is. And if you understand what its purpose is or what closed end funds are and so on, then you also understand the dynamics in the markets, how markets generally work. And that's the foundation you need to have as well. It's like if you go to some factory or get into a car, being a mechanic and then you just start tinkering around, but you don't realize how important the drive shaft actually is.

You don't know whether you're filling up with gasoline or diesel when the engine is running. You just fill it up anyway.

Exactly. You just fill it up. Right? You just put it in. And that's really the problem here. You also have to understand the big players and how they think. Of course, we'll never really get to the bottom of all the techniques, but there are things that you can simply recognize and see in the market. And when you recognize and see that, you understand who's behind producing and making all of it. And that's the background knowledge for me.

Personally, for example, it helps to have learned not to think that something always has to come back, but rather when big players have a certain agenda. You could see this very clearly in the oil trade. When oil prices went negative for many people, it was unimaginable and unthinkable that something like that could happen. And things like that happen again and again on the stock market. And you can lose everything you own because of it. I know this from many people, or I just saw it with bitcoin. Everyone is shouting, bitcoin is going to 10 million. Right? And we were at 125,000. And we clearly said, this is where it ends. Period. Now a correction is coming first. This correction happened very, very quickly. You wouldn't believe how many people I've had come to me who lost everything they had. Because something as highly volatile as Bitcoin can move 10 or 15% in no time at all. That's the problem. I have to ask you guys, how much common sense do you actually have left? Honestly, it's really bad. And there are just so many things happening on the markets where I have to say, clearly, nothing is impossible. Always keep an eye on your risk. And if the big players have an issue, if the big players start to move if the big players have to start building positions, forget it. You can only go along for the ride if you're lucky. That happens quite often in the commodities market. You get trading halts after extreme moves every day. And then you sometimes see moves of 15 or 20% in a commodity over three or four days. If you're positioned with leverage in the wrong direction, you're wiped out. And I just often think it's really better if you understand more commitment of traders. Report, cot report. Those are the kinds of things I'm talking about.

Yes, exactly.

It's good to know what that is, but it's also important to know and understand who they are, who the traders, trader groups are that are required to report, and so on. But in the end, that's not an edge. It's simply about having a slightly deeper understanding. Why do commodities futures even exist? Who publishes the data? And what do the producers do when they have an issue? Yes, but dear people, none of that is an edge. Please take a look at how markets really work. Who really moves the markets? Watch some movies about it before you start trading. Watch Wolf of Wall Street. You can actually learn something from it, even if it's completely ridiculous. I know what you learn from that. Yeah, your dwarves and all that. But what really needs to be said is if you just spend a bit more time dealing with trading on the stock exchange. It's already pretty deep if you really want to get into it.

I just wanted to say that you should actually understand it. Like this Bitcoin, for example. That's the problem most people have. Usually the institutional investors are selling at the hype and the retail investors are buying at the hype. That's always the problem. The retail investors always buy when the price is already too high, when the hype is at its peak. And the louder the markets get, the more likely it is that the opposite will happen. And that's exactly what they deliberately take advantage of. In a way, they also create hypes in the markets.

That's a conspiracy theory, what you're saying there. Yeah, yeah, yeah. But it's fine too. I'm with you. It really is like that to some extent. I actually experienced back then how you could hype up penny stocks back in the days with faxes and so on. Those things went up 600, 800%. Then there was a quick call and the Federal Financial Supervisory Authority said, we're going to suspend trading of these shares. And a day later they reopened at $0.01.

Back then, with stocks, sometimes we could just.

Yeah, create a hype like that. And in certain sectors, we even did it in groups so that one of us could really cash in because he just needed those few cents. No joke. Yeah, I know, it's all doable.

You can also manipulate the closing prices of stocks by placing a market order at exactly the right second during the closing auction. And with that, the market actually ends at that price. And that's done a lot with small penny stocks. So the thing still looks cool and green, but in reality it's all just hot air. And that's actually where I want to go today. There too. Supply and demand is the most essential thing you need to understand. And if there's just a huge supply and no more demand, well, then the cow flies. And the same goes the other way around. And these are things you need to learn to understand. And with Wolf of Wall street, of course, that was a joke. You don't learn how to trade in that movie, but at least you get a bit of an idea about the crazy world of the stock market. There are lots of great French documentaries on Arte and so on where you can get a deeper insight into the roles traders have. And then as a day trader, you immediately realize they just swam right up to the gate. They couldn't care less about that. Whether they get fair prices or not doesn't matter to them. All they care about is having their orders settled by 4:30pm and please keep that in mind so you can develop a deeper understanding of the markets, develop deeper logic, and then trading will feel much, much, and you'll be able, when something takes off, not to just take your profits, but to let it run until, for example, it goes from green to red, right? Or red to green, depending on which direction it's moving. And that's just really, really great. So my request to you is definitely look deeper into the markets. Learn how global money really forms. Why does it even come to the markets in the first place? Who are the major market participants and what are their interests? Because in most cases they have completely different interests and ways of operating than what we traders think is happening in the markets. And that's why you should stop starting with a setup. Stop it. Stop starting with market profile or anything like that. Instead, first learn briefly and concisely what a future actually is, what an exchange is in the first place. In my opinion, this is far too often neglected because of all the social media and so on, and everything gets glossed over. But I promise you, in the end it will all blow up in your face. Because then comes that one trade where you have a huge opportunity, but you lack the deep understanding. For example, with oil futures, when there were no more storage facilities and the price went negative, if you had simply invested in an oil tanker and booked the stuff, that would have been extremely profitable. But others recognized this much faster. And bathtubs were useless too because we couldn't fill them up. And that's when things just get difficult. Lets stop with the silly nonsense. It's just the truth. And what would you say in closing, Serge? What advice would you give people to quickly find their way into the logic of global money flows? What would you say is really, really helpful?

What really helped me was that I started reading a lot of newspapers back then, no joke, but not just any but business newspapers, there are some really good ones out there. I still have a subscription. I also still have Economics, that's a specialist publication. I really do still have a subscription to that. That's where I get a complete overview and gather information about the entire economy and the world. And that also helps you to understand everything globally, what's happening right now. And of course for day trading, understanding the global picture isn't really advisable. But in some situations, when say the President appears in the news and says something, you can connect the dots and then you can build a context for yourself from that. What could happen now in terms of market direction. And if you build a context from that, then you also want to see this event happen. And when you see the event, because you already know what could happen next and the market confirms it for you, then that's your edge and that's when you trade it.

Do you know what I spend money on? On mainstream newspapers? Do you know why?

Why?

I'm telling you it's the truth. Listen, markets operate in decades. Let me talk about the stock markets now. And you will see these cycles are usually fairly consistent. And when the mainstream newspaper starts writing that it's time to buy stocks, then it starts causing damage. But hold your position because I'm telling you, when these newspapers then write that you have to sell all your stocks, the world is ending and even the stock markets will disappear. That's when you need to buy a little.

And you know why? It's because institutional investors actually need that. And many people don't understand this. The institutional place players need the retailers, so to speak, even though the small investors only make up a part of the overall trading volume at the moment. But the panic, the panic of people, the fear, the greed, that's what ultimately makes the markets so volatile. And that's Also, why institutional and algorithmic systems need them.

And maybe just to wrap this up so we can finish the thought, I can say from the people I know, from the fund companies I've gotten to know, there are only a very few small hedge funds, small investment funds, small trusts, where true day trading is actually practiced to perfection. And it's an extremely small proportion. But those guys, they really put a lot of deep thought into all these processes. And of course, they also achieve far above average performances in the markets, but they prefer to stay under the radar. And here again, we're back to newspapers, to major powers. It's very understandable. Well, dear friends, I hope you enjoyed this. I hope this has helped you a bit to think more deeply about the logic of the markets, to take a look behind the scenes, to want to look behind the scenes, to use your time for that, instead of watching Bayern Munich against Eintracht Braunschweig or whatever those teams are called. Instead, take a closer look at what's really happening on the global financial markets. Who is moving the money, what these funds are doing, what their statutes are. Really engage with this and it will help you develop more awareness in trading. From my side. Many thanks, Serge. Do you have any final words from your side?

Not another saying, but a little piece of advice. Watch the movie Margin Call, you'll understand quite a bit from it.

Yes.

Thank you very much and thanks to all of you. It is always a genuine pleasure and a real privilege for us to be able to tell you, our valued audience, how we, as old men, look at and perceive the stock markets.

I'm still young.

I'm older. Goodbye, everyone.