What is the difference between institutional investor and retail investor?

If you are associated with stock markets enough, chances are you might have heard of the terms ‘institutional investor’ and ‘retail investor.’ But have you ever wondered what kind of investor you are among these two and what is the difference between them? If yes, then this article is for you! Let’s examine what the difference between an institutional and retail investor is and see how it matters in the stock market today!

Institutional investors 

They are huge investors with a significant share in the stock markets. They include hedge funds, mutual fund houses, pension funds, money managers, banks, insurance companies, commercial trusts, endowment funds and even some pocket-heavy private investors. They own a lion’s share of shares in the stock market and account for most of the stock market trades on a daily basis. They usually buy or sell shares in bulk, which could have the power to move share prices or even change the course of stocks. The most important factor is that they have more liberty and freedom from regulators regarding stock markets compared to a retail investor as they are considered knowledgeable and are less prone to make uninformed decisions or trades. 

How do institutional investors work?

As said above, institution investors include funds and money managers mostly. The common trait here is that most of these investors don’t invest their own money. Either they pool money from different people and invest in stocks like a mutual fund do or they manage money for private investors or institutions on their behalf. Your everyday mutual fund is the best example of this. Here, you are benefitting from the expertise of a fund manager who could have far more experience and expertise than you relating to investing in stock markets.

Institutional investors are also offered lesser fees including brokerage as they have a huge purchasing power and they do many trades compared to a retail investor. 

Retail investors

The explanation on institutional investors might have already made it clear for you what a retail investor is. As you might have guessed, retail investors are technically all traders who are not considered institutional. This is almost all the individuals who trade in the stock market. These investors make decisions for themselves on stocks to buy today and they don’t represent anyone when they trade. They are managing their own money and they most probably will have personal investment goals like a retirement fund or a big purchase, fueling their investment. 

Retail investors don’t have the luxury of lesser broker fees like institutional investors do. Also, they have to follow more stringent regulatory rules as they are more prone to uneducated investments. 

How to buy stocks as a retail investor?

The technology of today had made it extremely easy for a retail investor to trade. All stockbroker websites have a hassle-free setup process to make you investment ready in minutes. While the chronology might vary from broker to broker, below are the common steps to invest in stocks.

1. Go to the stockbroker website or app of your choice.
2. Sign up with your basic information.
3. Do the mandatory KYC. This step will need your PAN and Aadhaar card details.
4. The broker will create a demat account for you after the KYC.
5. Once a demat account is made, you may be prompted to verify and add a bank account.
6. Some brokers might need you to add money to your wallet associated with the broker to start trading.
7. Once that is done, you can choose the stocks you want to buy and buy them in a click!

Being a retail investor is one of the most promising side-hustle in today’s times. But before you start investing, make sure you do your research or at least consult a financial expert. Happy investing!