Wed, July 24, 2024

Interesting Facts about Institutional and Retail Investors

Institutional and Retail Investors, stock market

It is worth mentioning that not all types of investors are the same, and there are a number of differences between institutional investors as well as non-institutional or retail investors. It is important to learn more about the different types of investors.

Interestingly, an institutional investor is a person or organization that trades securities in large enough quantities that it qualifies for preferential treatment as well as lower fees. However, a retail investor is an individual or non-professional investor who buys as well as sells securities through brokerage firms or savings accounts like 401(k)s.

As a reminder, institutional investors do not use their own money, but rather invest other people’s money on their behalf. In the case of retail investors, they are investing for themselves, often in brokerage or retirement accounts.

Institutional investors and main findings

Let’s have a look at institutional investors. Importantly, they are the big guys on the block-the elephants. For example, they are pension funds, mutual funds, insurance companies, money managers. Moreover, hedge funds and some private equity investors. Interestingly, they account for about three-quarters of the volume of trades on the New York Stock Exchange.

Importantly, they move large blocks of shares as well as have a huge influence on the stock market’s movements. It makes sense, as they are considered sophisticated investors who are knowledgeable and, therefore, less likely to make uninformed decisions. However, they are subject to fewer protective regulations than the Securities and Exchange Commission (SEC) provides to an average, everyday investor.

Interestingly, the money they use is not actually money that the institutions own themselves. As a reminder, institutional investors generally invest for other people. For instance, if a person has a pension plan at work, a mutual fund, or any kind of insurance, then this person is actually benefiting from the expertise of institutional investors.

It is worth noting that, because of their size, they can often negotiate better fees on their investments. Moreover, they have the ability to gain access to investments normal investors do not, such as investment opportunities with large minimum buy-ins.

Retail investors and their goals

People should keep in mind that, in the case of an institutional investor, any person who buys and sells debt, equity, or other investments through a bank, broker, etc., falls under this category. Importantly, these people are not investing on someone else’s behalf. They are managing their own financial resources.

Moreover, non-institutional investors are usually driven by personal goals. For example, they want to finance a large purchase, etc. As a reminder, because of their small purchasing power, they often have to pay higher fees on their trades. Moreover, they have to pay more money for other services as well. They do not have the opportunity to make certain risky, complex decisions as they are considered unsophisticated investors.

To sum up, the difference is that a non-institutional investor is an individual person. However, an institutional investor is some type of entity, for example, a bank, pension fund, mutual fund company, or any other large institution.

As can be seen from the information stated above, there are several differences between institutional and non-institutional or retail investors. It makes sense to have at least some knowledge about them. Moreover, people should not forget about other important information as well. For instance, it is desirable to learn about various companies before investing money in one of them. This way, it will be easier to avoid additional challenges.

Furthermore, people should take time and think about all risk factors. As a reminder, millions of people around the world lost their jobs in 2020 due to the coronavirus pandemic. So, it is important to understand whether this person has the opportunity to invest money in one or several companies.

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