So what is the difference between a retail versus institutional investors? 

The most important difference is the greater level of protection offered to retail investors whose losses are capped at their account balance. Let’s get this message out as the more retail traders are aware of this point then hopefully another lockdown death of a 20-year-old day trader  might be avoided. 

As the name suggests the Institutional investors are large investors, the pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, and also some private equity investors. 

Retail versus Institutional Investors
Retail Investors - Losses Capped

“greater level of protection offered to retail investors whose losses are capped at their account balance”

WEALTH TRAINING COMPANY

The difference between a retail versus institutional investors is that the latter moves larger blocks of shares compared with retail investors

In a pre-COVID-19 world about three-quarters of the volume of trades on the New York Stock Exchange were due to trades from pension funds, mutual funds, and money manager institutional investors.

But that was in a pre-COVID-19 world. 

With non-online entertainment shut down during the great lockdown, the markets were still open for business.

So with people under house arrest, waves of bored people turned to trading, which spurred a coronavirus online retail trading boom.

“TD Ameritrade reported that in April the firm averaged 3.051 million client trades per day in the month, up to five percent from March” according to Traders Magazine.

TD Ameritrade 3 million client trades per day

“TD Ameritrade reported that in April the firm averaged 3.051 million client trades per day in the month, up to five percent from March”

TRADERS MAGAZINE

“Elevated retail volumes are clearly contributing to heightened volumes and are running upwards of 20 percent from their more usual low ten percent range,” said Joe Mecane, Head of Execution Services at market maker Citadel Securities. 

So with rolling lockdowns looking like the “new normal” retail investors could be having a greater impact on market volumes.

“institutional investors account for more than 50 percent of trade volumes, which is heavy capital flows, so smart money can and still does influence prices” – Wealth Training Company

Is the difference between retail versus institutional investors, the so-called smart money, becoming less significant going forward?

It is true to say that a post-pandemic world has created a boom in online trading, particularly across smartphone trading platforms with retail trading volumes heading towards 20 percent. But I don’t buy the view that retail investor volumes are driving up stocks. Today’s market is more about central bank liquidity than anything else. 

So who was really behind the bankrupt Hertz’s stock rally wasn’t day traders, but strategic investors with knowledge about a pending restructuring.

Moreover, institutional investors account for more than 50 percent of trade volumes, which is heavy capital flows, so smart money can and still does influence prices.

Another difference between retail versus institutional investors is a shocker, the latter has received bailouts. See a piece entitled, “Confirmed Fed Bailed Out Hedge Funds Facing Basis Trade Disaster. 

The takeaway of this piece is that the difference between a retail versus institutional investors is that a retail client has the highest level of protection under the regulatory system

For example, your broker account benefits from negative balance protection. So if market movements cause your balance to go negative, the broker adjusts it to zero, in the case of IG Index.

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