Retail vs institutional investors
When it comes to investing usually investors will usually fall into two categories, retail and institutional. There is a very good chance that if you are reading this you are a retail investor, but this isn’t a bad thing.
So what is each categorisation?
A retail client or non-institutional client would be an investor who buys or sells any form of debt, asset, equity, commodity or financial instrument through a bank or broker. Usually, retail clients are managing their own money and are driven to invest for either their own personal future, retirement or a large purchase. In the UK a retail client is subdivided into Pro-retail and retail. The everyday retail investor can come along and invest in assets, derivatives or commodities provided they meet the broker's minimum requirements. The FCA does outline the general minimum criteria which involve being over 18, having an income and savings and specific residency status.
A pro-retail client is the middle step between institutional and retail. To be classified as a professional investor the FCA would require that the client has over €500k invested, is qualified or works within the financial area and has traded on the stock market at a significant volume over the past 4 quarters. The advantages between retail and pro-retail include having reduced fees and charges, lower margin requirements and access to markets that a usual retail client may not have access to.
Institutional investors or per se professional clients are often an institution, money managers, pension funds or banks. Institutional investors make up over 85% of the volume traded on the NYSE so they have a serious influence on what the market does, hence the categorisation. Quite often firms in this category needed to be regulated by the government’s financial bodies of the country in which they operate. This is to ensure market manipulation does not occur. Becoming an institutional investor in the UK requires some serious money behind you. In the UK the FCA stipulates a minimum of €20m on your/the company’s balance sheet, €40m turnover or €2m of owned funds. Because of their size, institutional investors often have the ability to negotiate fees and access investments that retail clients simply cannot afford.
