Institutional vs. Retail Investors

You can trade by merely pressing the buy or sell button. More sophisticated traders, however, may opt for more complex trades by setting a limit price on a block trade that is parsed over many brokers and traded over several days. There are two basic types of traders, retail and institutional. In this article, we read more on retail investors vs institutional investors.

Retail Trader:

1. An individual trader who buys and sells stocks for their account and not for another company or organisation.

2. Retail traders focus on technical systems, price patterns, and indicators.

3. Retail investors buy and sell 100 stocks, known as round lots.

4. The number of traded shares is too few to impact the price of the stock.

5. Retail traders invest in stocks, bonds, options and futures.

6. Minimal to no access to IPOs.

7. Often charged a flat fee for each trade and required to pay retail marketing and distribution costs.

8. Small-cap stocks have lower price points that attract retail investors. So, they buy many different securities, and inadequate numbers of shares to achieve a diversified portfolio.

Institutional Traders:

1. A trader who buys and sells shares for accounts they manage for organisations, like a bank, insurance, company, or mutual fund.

2. Institutional traders focus on fundamentals, sentiments, and trading psychology.

3. Institutional investors engage in block trades; they buy or sell 10,000 or more shares at a time.

4. Institutions are the most significant force behind supply and demand in the securities markets; they perform a majority of trades on major exchanges and significant influence the prices of securities.

5. Invest in stocks, bonds, options and futures, but also in forwards and swaps.

6. Granted buying access and solicited for investments in IPOs.

7. Not charged marketing or distribution expense ratios.

8. The larger the institutional fund, the higher the market cap traders tends to own. They don’t want to be majority owners in smaller cap stocks to prevent a decrease in liquidity to a point where no one will want to take the other side of the trade.

These are the points to distinguish institutional vs retail investors, and each group has its advantages. Institutional investors are major stakeholders and exert considerable influence across all investment asset classes. Retail investors hold comparatively smaller investments; however, they have access to less risky securities than institutional investors.

If you’re a retail investor looking to start a brokerage account, reach out us, and we’ll get you started in no time.