What Is the Meaning of Institutional Stock Trading?

Two basic types of stock traders exist: retail traders and institutional traders. Small and individual investors comprise the retail sector, while commercial organizations such as mutual funds and insurance companies make up the institutional sector.

  1. Institutional Investors

    • Institutional investors make up a large part of the daily trading volume in the stock market. Large schools, pension plans, mutual funds and insurance companies make large purchases throughout the trading day.

    Preferential Treatment

    • Because of the large number of shares they trade, institutional investors receive preferential treatment (one-on-one meetings with company management, for example) and pay lower commissions to brokerage firms for account management.

    Relaxed Regulations

    • Institutional investors face relaxed protective regulations because they have more trading knowledge than the average individual investor. This gives institutional investors less protection against loss due to investment decisions.

    Block Trades

    • In general, institutional investors buy and sell stocks in blocks of 10,000 shares or more and bonds in blocks of $200,000 or more.

    Market Influence

    • Institutional investors can move the stock market up or down based on their large trade volumes. Retail investors often follow the buy and sell movements of institutional investors.

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