Institutional vs. Retail Investors – What’s the Difference?

In the fast-paced world of finance, trillions of dollars move around from one market (or stock) to another every day. This continuous movement of money is what drives the economy, impacting companies, countries and individuals.

But who is driving this flow of capital in the financial markets? Well, the answer is investors, of course.

The world of investing attracts all types of investors for varied reasons. The two major types of investors are retail investors and institutional investors. Let’s learn more about them.

Retail Investors

Individuals who invest their own money in the financial markets for the sake of profit are considered retail investors. They are not professionals and tend to trade smaller volumes of stocks and other asset classes like commodities and ETFs on their personal account. Here are some of the types of retail investors:

Institutional Investors

Institutional investors are entities that invest on behalf of others (more often other companies ). They allocate capital according to the goals of the company or organization they represent. A few of the most widely known types of institutional investors include:

As big daddies of the stock market, they have tremendous influence on the movement of the stock market. They are sophisticated investors with in-depth knowledge about various opportunities in the market. They conduct extensive research and have more expertise.

The main difference…

Key differences between retail and institutional investors include:

The volume and size of trades

The amount of capital associated with these trades

The costs involved in investing

Investment knowledge and experience

Access to pertinent investment research

Impact of Institutional Investors

So, how influential are institutional investors? Well, as mentioned earlier, their influence is based on their size and wealth. As a result, they have the capacity to purchase shares or commodities in massive quantities, significantly dictating market sentiment and impacting price movements.

If you invest in stocks, a smart strategy would be to observe the actions of noted institutional investors to understand the rationale behind their investment decisions, and to do your own due diligence and research.

Getting Started as a Retail Investor

No matter how inexperienced you feel, you can start trading a range of financial assets through trading software or online trading platforms. Today, there are tools and indicators that provide in-depth insights, analysis as to how the markets will move or even which stocks to choose. If you wish to learn about trading and where to invest in stocks, take the help of a consultant.