what is a retail investor 
a retail investor also known as an individual investor is a non professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and exchange traded funds etfs retail investors execute their trades through traditional or online brokerage firms or other types of investment accounts retail investors purchase securities for their own personal accounts and often trade in dramatically smaller amounts as compared to institutional investors an institutional investor is an umbrella term for larger scale investments by professional portfolio and fund managers who might manage a mutual fund or pension fund understanding retail investorsretail investors usually buy and sell trades in the equity and bond markets and tend to invest much smaller amounts than large institutional investors however wealthier retail investors can now access alternative investment classes like private equity and hedge funds because of their small purchasing power most retail investors may have to pay higher fees or commissions for their trades although many brokers have eliminated fees for online trades the u s securities and exchange commission sec is charged with protecting retail investors to ensure the markets function in a fair and orderly manner the sec helps retail investors by providing education and the enforcement of regulations to ensure people remain confident and comfortable investing in the markets retail investors have a significant impact on market sentiment which represents the overall tone in the financial markets predictors of investor sentiment include mutual fund flows the first day performance of ipos and survey data from the american association of individual investors which questions retail investors about their expectations for the market sentiment is also tracked by stockbrokers like td ameritrade and e trade criticisms of retail investorscritics say smaller investors do not have the knowledge discipline or expertise to research their investments an investor who makes small size trades is sometimes pejoratively known as a piker as a result they undermine the financial markets role in allocating resources efficiently and through crowded trades cause panic selling these unsophisticated investors are said to be vulnerable to behavioral biases the retail investment marketthe retail investment market in the united states is significant in size and scope and according to the sec an upwards of 58 report having invested in public markets 1 forty three million u s households hold a retirement or brokerage account fifty six million u s households 44 of all households own at least one u s mutual fund as of 2018 2and while americans gravitated to savings accounts and passive investing in the aftermath of the 2008 financial crisis the number of households that own stocks has risen since according to the federal reserve s survey of consumer finances 70 of upper middle income families owned stocks in 2019 3retail investors frequently invest in companies that they are familiar with from their own daily lives and purchasing habits this often tends to be larger blue chip companies etfs have also become very popular with retail investors as these funds allow investors to achieve instant diversification each etf contains shares in many companies offering investors a diversified portfolio through investments in a minimal amount of funds retail investors now have access to more financial information investment education and trading tools than ever before brokerage fees have decreased and mobile trading has enabled investors to actively manage their portfolios from their smartphones or other mobile devices a huge range of investment funds and online brokers have no or low minimum investment or minimum deposit amounts ranging from zero to a few hundred dollars even some robo advisors don t require a minimum investment nevertheless as democratized as investing becomes it is still all about doing your homework institutional investorsinstitutional investors are the big players in the market who move big money examples of institutional investors include institutional investors account for a significant amount of the trading volume on the new york stock exchange nyse they move large blocks of shares and have a tremendous influence on the stock market s movements because they are considered sophisticated investors who are knowledgeable and therefore less likely to make uneducated investments institutional investors are subject to fewer of the protective regulations that the sec provides to your average everyday investor the money that institutional investors use is not actually money that the institutions own themselves institutional investors generally invest for other people if you have a pension plan at work a mutual fund or any kind of insurance you are actually benefiting from the expertise of institutional investors 