Retail investors vs institutional investors: The major differences

There are various types of investors you will come across while doing business, and the work profile of every investor can vary. This article will discuss the working of retail investors and institutional investors and their major differences.

In the United States, investments are generally made by two types of investors: institutional investors and retail investors. The qualifications, job role, and potential benefits of each vary. Now, let’s get deeper into the concept of retail and institutional investors.

retail investorsRetail investors – All you need to know

Retail investors, also known as non-institutional investors, is an individual who purchases and sells securities via saving accounts or brokerage firms. This individual is also known as a non-professional investor who obtains securities for his/her own personal account rather than for the company.

These types of investors purchase assets such as exchange-traded funds, mutual funds, securities, bonds, and stocks.

A retail investor manages his own funds, and they don’t invest for someone else, and thus, they can actively regulate their portfolio online. According to this link Bitcoin as digital money can be used by various investors to invest in smaller amounts can play the long game.

The following are the top features of a retail investor or trader:

  • Small-cap stocks have a low price point, and this attracts retail investors.
  • They charge a small fee for each trade and have to pay distribution and marketing costs.
  • Low or no access to IPOs.
  • Retail investors or traders invest in bonds, stocks, mutual funds, etc.
  • The amount of traded shares is low.
  • These traders buy and sell a hundred shares, called round lots.
  • Retail investors focus on indicators, price patterns, and technical systems.

Institutional investors – All you need to know

An institutional investor can be an individual or an organization that trades securities in large quantities and qualifies for minimal fees and special treatment. This investor makes decisions on behalf of organizations or shareholders.

Moreover, this investor does not use his own money; instead, he uses others’ money. They have larger resources and money to invest than retail investors and include assets such as currencies, real estate, and futures. They make a proper plan after financial analysis and research, and then they proceed to invest.

Also, an institutional investor negotiates better investment fees because of their size. So, now let’s proceed to know the top features of institutional investors that will make your concept more clear regarding the same.

  • Institutional investors own a large market cap if the investment fund is high.
  • Not charged distribution or marketing expenses ratios
  • They invest in assets such as mutual funds, pension funds, commercial trust, banks, insurance companies, hedge funds, etc.
  • These investors perform the majority of trades on various exchange platforms.
  • Institutional investors act as a vital force behind the demand and supply in the securities market.
  • They are mostly engaged in block trades, can buy or sell huge shares in one go.
  • These investors mostly focus on sentiments, basic, and trading psychology.

Retail investors vs. institutional investors: The major differences

Now, you are aware of the definition and basic differences between these types of investors. Nevertheless, there are some important differences between retail and institutional investors:

  1. Non-professional investors have more ways to invest knowledge, trading instruments, and monetary information than institutional investors.
  2. Retail investors invest a lower amount than institutional investors.
  3. An institutional investor is an entity like mutual funds, an insurance company, etc. On the other hand, a retail investor is a person who interacts with trading.
  4. Retail investors only invest for themselves, but an institutional investor invests on behalf of someone else, such as organizations or a shareholder.

The bottom line

The working process for both investors varies to a great extent. So, this is all about both investors. I hope the above data will help you to understand the concept of both retail and institutional investors in-depth.