Retail Investors vs Institutional Investors

We often hear the terms 'retail investor' and 'institutional investor' in the global stock markets. The functions and style of operation of these investors is totally different. Let us compare these two types of investors in the next few paragraphs.

Comparing Retail and Institutional Investors

Retail investors are the individuals and small groups who invest in the equity market for either short-term or long-term gains. On the other hand, institutional investors are the banks, financial services firms, different financial institutions and mutual fund companies which make heavy investments in the stock markets generally for a prolonged period of time. The risk taking capacity of institutional investors is far more than that of retail investors. So, that is why we see many institutional investors purchasing falling stocks or holding stocks even in the phase of a bear market.

Retail investors constitute of a very small portion of the total volumes generated on the stock exchange. This is true in the case of almost all the stock exchanges in the world. So, we can say that the stock markets across the world are directed and controlled mostly by the large institutional investors. The institutional investors can either be the domestic ones or the foreign ones who have sought the requisite permissions to invest in markets of various countries. The financial planning and financial management of institutional investors is much more sophisticated and perfect as compared to the retail investors. That is why, it has been observed that institutional investors have always made more money than the retail investors.

Lack of knowledge of the stock markets is an age-old problem with the retail investors. Many times, such investors depend on the news in the market or tips from technical analysts to trade in stocks. On the contrary, institutional investors have their own talented research teams which conduct a thorough stock research before investing. However, one thing is for sure-the institutional investors have a more performance pressure as they have the money of the masses with them and they need to give the promised returns on investment for all their investors to maintain their standard in the industry. Many retail investors are seen copying the moves of the large institutional investors which can be disastrous for them. Retail investors should prepare their own stock portfolio based on their risk taking ability and invest for the long-term to beat short-term volatility in the markets.

These days, a lot of efforts are being made to increase the retail participation in the stock market. This will not only increase the total turnover of the exchanges, but also help more and more investors to get decent returns. After reading this article, you must have surely understood the difference between retail investors and institutional investors. Finally, from the retail investors vs institutional investors comparison, we arrive at the conclusion that retail investors have a long way to go in the world capital markets.