Types of Investors in the Stock Market

by Geri Terzo

The two primary types of investors in the stock market are individuals and institutions. The former, who may be referred to as retail investors, can range from wealthy households to individuals with average income. Small investors often rely on the products offered by institutions to make money. Institutions are bigger investors that typically perform the largest trades in the financial markets. Large organizations may trade on behalf of clients or for the institution itself.

Institutions

An institutional investor could be a financial firm, such as an investment bank, a money management company or a pension fund, for example. A bank might have an internal team of traders, known as proprietary traders, who use the firm's money to invest and make money for the organization. An asset management firm typically oversees money on behalf of large and small investors and adheres to a certain strategy to meet risk and reward expectations. Pensions are retirement funds that use the stock market to increase the size of benefits for plan members.

Individuals

In 2011, the number of individuals who owned stocks in some form dropped more than 10 percent from 2007 levels to 54 percent, according to an article on the Gallup website. The decline in individual stock ownership began when the financial markets entered a recession and equity profits dwindled. The lion's share of individual investors are between the ages of 50 and 64 and earn a salary of least $75,000 each year.

Difference

Although the size of financial transactions performed by individuals tends to dwarf those done by larger institutions, the difference could work to the advantage of small investors. One strategy suggested in an article on the "Forbes" website is to gain a position in a stock when the equity security appears to be gaining upward momentum. At the soonest sign of weakness, an individual can attempt to unload those positions and sell shares for a profit. It is more difficult for institutions to respond to market conditions as quickly because these organizations usually trade such a large number of shares.

Goals

Generally, institutional market participants create some type of asset allocation plan prior to directing any capital to the stock market. This blueprint illustrates the target percentage of total assets that should be placed in certain investment categories, such as stocks, to satisfy client expectations and justify fees. Individuals often invest for a specific event, which may be for retirement, to purchase a vacation home, or to create another income stream. Some individuals, known as professional day traders, buy and sell financial securities throughout the course of the day for a living.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

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