What Is an Institutional Investor?
An institutional investor is a company or organization that puts away money in the interest of others. Mutual funds, pensions, and insurance companies are models. Institutional investors frequently buy and sell substantial blocks of stocks, bonds, or different securities and, thus, are viewed as the whales on Wall Street.
The group is likewise seen as more sophisticated than the average retail investor and, in certain examples, they are subject to less restrictive regulations.
Figuring out Institutional Investors
An institutional investor buys, sells, and oversees stocks, bonds, and other investment securities for the benefit of its clients, customers, individuals, or shareholders. By and large, are six types of institutional investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies. Institutional investors face less protective [regulations](/directed market) compared to average investors since it is assumed the institutional crowd is more knowledgeable and better able to safeguard themselves.
Institutional investors have the resources and particular information for widely researching an assortment of investment opportunities not open to retail investors. Since institutions are moving the biggest positions and are the largest force behind supply and demand in securities markets, they perform a high percentage of transactions on major exchanges and enormously influence the prices of securities. In fact, institutional investors today make up over 90% of all stock trading activity.
Since institutional investors can move markets, retail investors frequently research institutional investors' regulatory filings with the Securities and Exchange Commission (SEC) to figure out which securities the retail investors ought to buy personally. All in all, a few investors endeavor to emulate the buying of the institutional crowd by accepting similar situations as the purported "smart money."
Retail Investors versus Institutional Investors
Retail and institutional investors are active in different markets like bonds, options, commodities, forex, futures contracts, and stocks. Notwithstanding, in view of the idea of the securities and how transactions happen, a few markets are principally for institutional investors as opposed to retail investors. Instances of markets basically for institutional investors incorporate the swaps and forward markets.
Retail investors normally buy and sell stocks in round lots of 100 shares or more; institutional investors are known to buy and sell in block trades of 10,000 shares or more. Due to the larger trade volumes and sizes, institutional investors now and again try not to buy stocks of smaller companies for two reasons. In the first place, the act of buying or selling large blocks of a small, [thinly-traded](/meagerly traded) stock can provoke sudden supply and interest irregular characteristics that move share prices higher and lower.
Likewise, institutional investors regularly try not to procure a high percentage of company ownership since performing such an act might disregard securities laws. For instance, mutual funds, closed-end funds, and exchange-traded funds (ETFs) that are registered as diversified funds are restricted concerning the percentage of a company's voting securities that the funds can claim.
The Bottom Line
Institutional investors are the big fish on Wall Street and can move markets with their large block trades. The group is generally viewed as more sophisticated than the retail crowd and frequently subject to less regulatory oversight. Institutional investors are generally not investing their own money, but rather pursuing investment choices in the interest of clients, shareholders, or customers.
- An institutional investor is a company or organization that puts away money for the benefit of clients or individuals.
- The buying and selling of large situations by institutional investors can encourage supply and interest uneven characters that outcome in sudden price moves in stocks, bonds, or different assets.
- Institutional investors are considered savvier than the average investor and are many times subject to less regulatory oversight.
- Hedge funds, mutual funds, and endowments are instances of institutional investors.
- Institutional investors are the big fish on Wall Street.