What Is an Institutional Investor?

An institutional investor refers to an entity, such as a mutual fund, pension fund, or insurance company, that manages and invests large amounts of money on behalf of clients or beneficiaries. These investors typically trade in significant volumes of stocks, bonds, and other assets. Due to the size and i𝐆nfluence of their trans♏actions, they are often seen as major players in financial markets.

The Role of Institutional Investors

An institutional investor buys, sells, and manages stocks, bonds, and other investment securities on behalf of its clients, customers, members, or shareholders. Broadly speaking, there are six types of institutional investors: endowment funds, commercial banks, mutual funds, 澳洲幸运5官方开奖结果体彩网:hedge funds, pension funds, and insurance companies. Institutional investors face fewer protective 澳洲幸运5官方开奖结果体彩网:regulations co🎶mpared to average investors because it is assumed the institutional crowd is more knowledgeab𒆙le and better able to protect themselves. 

Institutional investors have the resources and specialized knowledge for extensively researching a variety of investment opportunities not open to retail investors. Because institutions are moving the biggest positions and are the largest force behind 澳洲幸运5官方开奖结果体彩网:supply and demand in securities markets, they perform a high percentage of transactions on major exchanges and greatly influence the prices of securities. In fact, institutional investors today make up more than 90% of all stock trading activity.

Since institutional investors can move markets, retail investors often research institutional investors’ regulaܫtory filings with the Securities and Exc♉hange Commission (SEC) to determine which securities the retail investors should buy personally. In other words, some investors attempt to mimic the buying of the institutional crowd by taking the same positions as the so-called "澳洲幸运5官方开奖结果体彩网:smart money."

Retail Investors vs. Institutional Investors

澳洲幸运5官方开奖结果体彩网:Retail and institutional investors are active in a variety of markets like bonds, options, commodities, forex, futures contracts, and stocks. However, because of the nature of the securities and the manner in which transactions occur, some markets are primarily for institutional investors rather than retail investors. Examples of markets primarily for institutional investors include the swaps and 澳洲幸运5官方开奖结果体彩网:forward markets. 

Retail investors typically buy and sell stocks in 澳洲幸运5官方开奖结果体彩网:round lots of 100 shares or more; institutional investors are known to buy and sell in 澳洲幸运5官方开奖结果体彩网:block trades of 10,000 shares or more. Because of the larger trade volumes and sizes, institutional investors sometimes avoid buying stocks of smaller companies for two reasons. First, the act of buying or selling large blocks of a small, 澳洲幸运5官方开奖结果体彩网:thinly-traded stock can create sudden su𝕴pply and demand imbalances that move share prices higher and lower.

In addition, institutional investors typically avoid acquiring a high p♛ercentage of company ownership because performing such an act may violate securities laws. For example, mutual funds, closed-end funds, and 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs) that are registered as diversifi♒ed funds are restricted as to the percentage of a company’s voting securitiesꦰ that the funds can own.

The Bottom Line

Institutional investors are the big fish on 澳洲幸运5官方开奖结果体彩网:Wall Street and can move markets with their large block trades. The group is generally considered more sophisticated than the retail crowd and often subject to less regulatory oversight. Institutional investors are usually not investing their own money, but making investment decisions on behalf of clients, 澳洲幸运5官方开奖结果体彩网:shareholders, or customers.