What is a Retail Investor? You Might Already Be One

Retail funds offer investment opportunities primarily to individual investors rather than institutional investors. Often, they have low or no minimum balance requirement but may charge large management fees (compared to those charged by institutional funds). Now, retail investors can access equity analyst reports on individual companies through their online stock brokerage accounts research portal and other sources, which has expanded their access to information. With the retail investment market expanding, many online investment platforms now offer low investment minimums or transfers, promotions for transferring funds, and waiving trading fees to attract more customers. Typically, retail investors buy and sell debt, equity, and other investments through a broker, bank, or mutual fund. They execute their trades through traditional, full-service brokerages, discount brokers, and online brokers.

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The way those apps make money is by increasing the bid/ask spread, meaning you pay more for the stock through them than you would through a traditional broker. Small-cap stocks (meaning stocks with a market capitalization of less than $2 billion) generally outperform the market. Many institutions can’t purchase these stocks because they have too many assets under management and are restricted in the percentage of a company they can hold. Retail investors are flocking back to the stock market, and their investing behavior is savvier than during previous periods such as the meme stock frenzy of 2021.

A process that was limited to the 1% 40 years ago and to people with the time and energy to fill out endless forms 10 years ago can now be completed in 30 minutes on an app. Anyone who doesn’t do investing as a career is considered a retail investor. Let’s go over how the retail investing market works, its size, and the pros and cons of being a retail investor as opposed to an institutional investor. The U.S. Securities and Exchange Commission (SEC) is charged with protecting retail investors to ensure the markets function in a fair and orderly manner. The SEC helps retail investors by providing education and the enforcement of regulations to ensure people remain confident and comfortable investing in the markets.

1. An institutional investor is a company or organization with employees who invest on behalf of others (typically, other companies and organizations).
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3. On the other hand, retail investors are individuals who invest their own money, typically on their own behalf.
4. These funds do not have share classes and are traded on the open market.

Part of that strategy could be building better relationships with online trading platforms. Little to no bargaining power – retail investors generally have less bargaining power than institutional investors when it comes to polish zloty exchange rate negotiating prices or terms for investments. This is because they aren’t buying as much stock, and in most cases, don’t buy the stock directly from the company.

What is a Retail Investor?

Retail investors typically invest in stocks and bonds but mostly in stocks since bonds are notoriously difficult to trade on most trading platforms. Most retail investors use discount brokerages or apps such as Robinhood (HOOD -3.71%) or invest through an employer-sponsored 401(k) or other retirement plan. Discount brokers are often a more cost efficient way to trade mutual funds. Discount brokers often charge a transaction fee with each block trade. Fund companies work with all types of brokers to determine minimum investment levels required by an investor for investment. Minimum investments for retail funds can range from $100 to $10,000.

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It means that developed competence in a niche sector can lead to outsized gains going forward. Institutions can hire people to become specialists in every industry. They may not have the local knowledge you have in your industry, and there may be a lag before they know things, but they have at least a basic knowledge of every industry.

For example, a press release announcing third-quarter earnings below expected levels might not cause much, if any, concern for an institutional investor that has a particular strategy. However, some retail investors could see that news and start selling off, which might have adverse ripple effects across the market. Today, the financial technology industry’s growth has enabled individuals to make investment decisions independently, without the need for a broker or an employer-sponsored retirement account. Many smaller investment companies, apps and websites can have you ready to start investing in just a few days. The 10-plus year boom in technology growth stocks looked to be over as the pandemic started, but it has returned with a vengeance. Retail investors tend to be oriented more to the short term than institutions, and panic selling has led to a lot of volatility.

If you work for a construction company, you may understand the supply and demand dynamics for lumber, copper, and other materials. If you work for a bank, you probably have a good handle on current interest rates and credit standards. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.

Individual investors have a wide range of retail funds to choose from. While retail funds are open to all individual investors, they do have certain transaction costs and minimum investments that must be considered. To help investors better understand and analyze retail fund investments, Morningstar developed style boxes for both equity and fixed income funds. Style box analysis can help investors analyze and invest in retail funds with rise in treasury yields prompts speculation of a tantrum for markets varying levels of risk and potential return. Retail investors can use style box analysis to develop a diversified portfolio of retail funds across multiple investing categories through a brokerage account.

So while there’s no one-size-fits-all approach, you can use some strategies now. But for us retail investors, social investing has brought about a shift. Thanks to the rapid surge of educational resources online, retail investors have been able to keep up, and in some scenarios like the GameStop saga, actually ‘stick it’ to the institutional investors. Retail investors have access to the same markets as institutional investors, but they may not have the same level of resources or knowledge. Because of this, it’s generally assumed institutional investors are the ones ‘in the know’ and the retail investors are always playing catch up.

He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. Links to third-party websites may have a privacy policy different from First Citizens Bank and may provide less security than this website. First Citizens Bank and its affiliates are not responsible for the products, what are bullish engulfing patterns and how to trade them services and content on any third-party website.

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We believe everyone should be able to make financial decisions with confidence. As you consider how your own company fits in the market, this change is something to think about, especially if you’re looking to go public or are trading publicly already. When he’s not chewing your ear off about stocks and crypto, he’ll most likely be telling bad jokes.

Retail investors use brokerage firms or investing platforms to buy and sell things like stocks, bonds, mutual funds and ETFs. Essentially, they’re the everyday folk, like you and me who wish to make some investments. Institutional investors can be pension funds, mutual funds, money managers, banks, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, private equity investors, and more. An institutional investor is a company or organization with employees who invest on behalf of others (typically, other companies and organizations). The manner in which an institutional investor allocates capital that’s to be invested depends on the goals of the companies or organizations it represents. Some widely known types of institutional investors include pension funds, banks, mutual funds, hedge funds, endowments, and insurance companies.

Institutional investors are often required to hold hundreds of stocks. The more concentrated you are (to a point since you need some diversification), the higher your potential returns. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.

They often make their investment decisions based on their friends’ or families’ opinions, a few trusted websites, trading forums and message boards. Those individual Schwab investors are becoming increasingly optimistic. For the first quarter, a sentiment survey of individuals showed 53% of those polled were bullish. That compares to 32% in the fourth quarter.“That’s a number that we have not seen probably since, I want to say, the end of 2021,” said Joe Mazzola, Schwab’s head of trading and education. Large institutions have access to some transactions that aren’t available to the public.