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Retail Traders vs. Institutional Traders: What is the difference?

Although there are numerous investment techniques, there are only two types of traders: retail traders and institutional. Retail traders act as individuals investing their own money, whereas institutional traders represent organizations, many times investing others’ funds. Whether you're interested in stocks or crypto (or both), knowing what a retail trader is and how they differ from institutional traders is key. Knowing these distinctions can help you determine a suitable investment strategy for your situation.

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What are retail traders? 

Retail traders are people who invest in assets with their personal funds. These individual traders are sometimes called "non-professional" because they don't trade equities for a living. Instead, retail traders put some of their capital to work in financial markets either for short-term speculation or long-term investments. 

Today, most retail traders use online brokerage services to make trades on the stock market. Many of these platforms give traders access to financial instruments like securities, options, and ETFs. Retail traders can choose when to buy and sell assets in their accounts. With crypto, retail traders use exchanges and on-ramps to trade. 

Since individual retail traders don't deal with large quantities of assets themselves, in isolation they don't have a massive impact on share prices. However, because there are so many retail traders as a group, they can move markets.

Unlike institutional traders, retail traders don't enjoy early access to new stocks, private equity, or advanced trading features like forwards. This puts them at a disadvantage. However, as technology improves, the information and technology gap between retail investors and institutional investors is shrinking.

What are the pros and cons of retail trading?

Retail traders may seem to be at a disadvantage compared with institutional traders, but these individuals enjoy significant benefits compared to institutions.


  • Retail traders can create a self-directed trading strategy––there's no need to consult a team to execute trades nor adhere to somebody else’s tasks.
  • There's usually no minimum amount a retail trader needs to invest to start trading. 
  • More brokerage platforms now offer a wider suite of trading opportunities, like options and futures for retail traders. 


  • Retail traders still can't access IPOs (initial public offerings), private equity, and advanced trading features which are only available to institutional investors. 
  • Institutions will typically have more internal market data than an individual can find. 

What are institutional traders?

Institutional traders refer to financial organizations that manage other people's money. Instead of using personal funds to trade equities, institutional traders rely on clients' funds to execute orders. Investors who deposit money with an institutional trader are betting the institution's trading expertise will increase the odds of a high return on investment (ROI). 

Examples of institutional trading organizations include hedge funds like Bridgewater Associates, banks like JP Morgan Chase, or private equity firms like Bain Capital. Mutual fund and pension fund managers are also considered institutional traders. 

Institutional traders have more capital to invest in the markets, so they tend to hold large quantities of assets. Since institutional traders hold the lion's share of a market's liquidity, they have access to many financial instruments retail investors can't take advantage of. 

For instance, institutional traders are often the first to access a company's IPO, which is when a business first issues shares on a public stock market, like the New York Stock Exchange (NYSE). Retail traders can't buy an IPO stock until it formally lists on the stock exchange. By that time, it's likely many institutional investors already have shares of an IPO company. 

Institutional traders also have an easier time negotiating fees and settling on the bid/ask price they want. 

Since many analysts develop an institution's investment strategy, it's less likely an institutional trader will make emotional decisions. Indeed, institutions use internal research and analysis to craft advanced trading strategies. 

Institutional traders tend to carefully time their buy and sell orders to avoid triggering major stock price moves. Sometimes, institutions will spread their buys and sells across multiple brokers to reduce the risk of causing a severe supply shock. 

What are the pros and cons of institutional trading? 

Investing with institutional traders has many perks, but there are potential pitfalls to relying on these firms.


  • Institutions have increased access to high-quality market data and analysis from market experts. 
  • They have greater sway over trading fees and bid/ask prices. 
  • They can access IPOs and advanced trading features. 


  • Institutions usually require a high minimum deposit from investors. 
  • Depositors don't have control over their institution's trading decisions. 
  • Institutions may not have access to speculative micro-cap companies or penny stocks that retail traders can take advantage of. 

Retail traders vs. institutional traders 

While both retail and institutional traders trade the same assets, they don't have the same degree of access to data, investment vehicles, or disposable capital. 

Since retail investors rely on their income, they can't make the same large purchases institutions can. For this reason, retail investors may favor assets with low dollar amounts versus institutions. Retail investors are more likely to slowly dollar-cost average (DCA) into assets they prefer rather than buying large lots of shares in one go. 

Also, retail investors don't have the advantage of a team of analysts who constantly monitor financial markets. While retail traders can learn a great deal from earnings reports, chart data, and market news, they likely won't have the same expertise as a professional institution. 

In the past, retail investors didn't have access to many trading vehicles on online brokerage platforms. However, presently, it's easier for retail investors to put their money to work in the futures or options markets. In contrast, institutional investors still have greater flexibility in financial markets. 

Retail investors can only trade what their brokerage lets them trade, whereas institutional clients have more negotiating privileges. 

How to track institutional trading?

Many market analysts try their best to monitor institutional trading activity. Since institutions hold a large percentage of assets, they often trigger price changes in financial markets. Even if institutions spread out their buys or sells, the sheer quantity of their holdings impacts market dynamics. 

Since institutional traders hold so much sway over the market, they need to reveal their holdings every quarter. The U.S. Securities and Exchange Commission requires institutional investors that handle over $100 million to file Form 13F each quarter. This form lets the public know what equities an institution held in the prior quarter. 

While reviewing 13F statements can help investors see where institutional money is flowing, it's always a "rear-view mirror" indicator. When these statements get released, there's no telling whether an institution reduced its position in the current quarter. 

Unfortunately, there's no simple way to know when institutions are buying or selling assets unless you’re an employee at the firm. Plus, if an institution's employees used this data to make a trade, it would constitute illegal insider trading

While there's no scientific way to gauge when institutions invest in particular assets, some technical traders monitor volume levels in large-cap stocks, indexes, and ETFs (exchange-traded funds). Volume measures the number of shares that pass hands on the market. If there are abnormally high spikes in volume without significant news from a company, there's a chance institutions may be placing large buy or sell orders. 

However, remember that tracking volume in assets is highly speculative. It's also impossible to track institutional vs. retail trading on a volume chart. 

There are some instances where retail trading volume can have an outsized influence on a stock's price. For example, GameStop's stock (GME) soared in 2021 after a group of retail traders on Reddit decided to buy up a ton of shares. The buying pressure was so intense that it forced many firms shorting GME to cover their losses and buy at a higher price. 

While volume may help speculators determine institutional interest in equity, it's not the most precise way to track institutional behavior. Currently, the only way to know what institutions are buying and selling is to review 13F Forms. 

Are there institutional traders in crypto? 

Just because crypto is a relatively new investment class doesn't mean everyone in crypto is a retail trader. Interestingly, many early Bitcoin investors who held large positions (aka whales) became today's institutional traders. There are also many prominent venture capitalist firms, funds, and exchanges that make large purchases in cryptocurrencies. 

For example, the investment fund Andreessen Horowitz (a16z) has frequently opened multi-million-dollar funds dedicated to fields like Web3, the metaverse, and play-to-earn games. Centralized crypto exchanges (CEXs) also hold significant positions in cryptocurrencies and frequently engage in trading activity. 

Similar to the divide between institutional vs. retail stock traders, institutions involved in crypto tend to have more opportunities than individuals. For instance, many institutional investors may access a new project's ICO (initial coin offering) before it goes to the public. Also, institutions are more likely to invest in crypto start-ups before they become publicly available, in the private markets, where at this point, retail investors are shut out due to accredited investor laws. 

Wrapping up

Institutions may have greater access to stocks and crypto, but retail traders still have many options at their disposal. This is especially true in the emerging field of DeFi (decentralized finance). Today, crypto investors have access to many exciting opportunities in the digital assets market. 

However, if you’re an aspiring retail investor, you need to know the risks of crypto trading. At Worldcoin, we aim to ensure new traders know how to stay safe when getting involved in cryptocurrency. We intend to put a share of our crypto in everyone’s hands for free. We’re also airdropping free DAI to anyone who downloads our app. Subscribe to our blog to learn more about how to get involved with crypto. 

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