Who trades and who invests?
Traders, as opposed to investors, are those who’d prefer to make use of leverage and derivatives to go long or short on various markets.
Individuals (called retail traders), institutions and governments participate in financial markets by buying and selling assets with the aim of making a profit.
In 2021, retail traders accounted for 23% of all US equity trading, double the 2019 figure, buying more than $1.9 billion in stocks.1, 2 Coronavirus-related volatility, which saw stock prices fluctuating at an unprecedented rate, was followed by these soaring numbers.
Some financial traders stick to a particular instrument or asset class, while others have more diverse portfolios. Governments and institutions can adapt at a much faster pace, as they often have departments that focus on trading different sectors and industries. Institutions remain the biggest participants in the market, with about 77% of trades attributed to them.
For individuals to invest on the stock exchange, they must go through a stockbroker that will execute the order. They’ll do their due diligence, research before placing a trade, read charts, study trends; and the broker will act on their behalf. Retail traders take positions from their own private accounts, which they fund – they bear the full risk of losing their capital.
Institutions that trade include commercial banks, hedge funds, and corporations that have an influence on the liquidity and volatility of stocks in the market. This is because they typically engage in block trades, which comprises of buying or selling at least 10,000 shares or more at a time.3
These entities stand to profit from supply and demand of goods or products, political instability, the availability of currency (including the movement of interest rates), and many other factors.
