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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved
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Tuesday, January 24, 2023

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

By Century Financial in Blog

Institutional vs. Retail Investors – What’s the...
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:

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The volume and size of trades
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The amount of capital associated with these trades
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The costs involved in investing
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Investment knowledge and experience
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Access to pertinent investment research
Institutional Investor Retail Investor

Funds
A huge chunk of money belongs to companies and organizations for who it represents Limited to an investors’ own money

Potential Trading Impact

 By taking large positions and making frequent transactions, sudden price movements can move an entire market in unexpected directions Mostly smaller trade sizes, having little impact on the entire market

Emotional Trading

 Experienced traders with knowledge and expertise about the market. They also have instant access to feedback and professional advice Lack of investment education and are more likely to follow trends and price movements.

Transaction Type/Size Example

 Block trades of 10,000 shares or more Round lots of 100 shares or more

Protective Regulations

 Subject to less protective regulation owing to investment expertise Subject to more protective regulation owing to perceived lack of experience and education

Limits

 Tend to transact large volumes and make sizeable investments Most likely to invest in stocks of companies with lower share prices

Information Advantage

 Access to extensive market research and minute-to-minute timely market insights feedback Less access compared to the information specifically reserved for institutional investors Have better access to reliable information than they did before but are prone to biases

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.

Disclaimer: Century Financial Consultancy LLC (“CFC”) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities and Commodities Authority of UAE (SCA). This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. CFC does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part. Please carefully read full disclosure mentioned on the website.

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