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 a range of markets. Investors seek to buy shares or funds and will profit if the price rises.
Individuals (called retail traders or investors), institutions and governments trade and invest. They participate in financial markets by buying and selling assets with the aim of making a profit.
In 2021, retail investors accounted for 23% of all US equity trades, double the amount of 2019, buying more than $1.9 billion in stocks.1, 2 These numbers soared after coronavirus-related volatility hit the market and stock prices fluctuated at an unprecedented rate.
Some financial traders and investors 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 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. They trade from their own private accounts, which they fund and bear the full risk of losing their capital.
Institutions that trade and invest 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.
