Intraday Forecasting Ability and Liquidity Provision of Institutional Traders
How institutional traders profit by predicting prices and waiting for other traders to buy
Institutional traders who can accurately predict short-term price movements earn significantly higher profits from their trades. The study found that traders with the best forecasting ability make 1–1.2 extra currency units per trade, while those who provide liquidity by waiting for other traders to come to them make 1.3–3.8 extra currency units—showing that patience and prediction together drive profitability.
Understanding how institutional traders actually make money reveals that skill in reading market signals and a willingness to hold positions longer than others are the real drivers of edge in financial markets. This matters to regular investors because it shows the sophistication of the traders they're competing against and explains why consistently beating the market is so difficult for those without specialized data and execution capabilities.