Retail Traders Vs. Institutional Traders – What Is The Difference?

Retail Traders Vs. Institutional Traders – What Is The Difference?

Retail traders are market participants who trade on their own behalf with personal capital. If you are reading this article, then it is highly likely that you currently fall into this category


Institutional traders manage capital for a group of people or a company and trade on their behalf. Examples include banks, pension funds, hedge funds, mutual funds, and insurance companies.

Advantages of being a retail trader

  • Because retail traders are trading their own accounts, they can risk more per trade, meaning higher potential % returns.
  • Do not require any formal qualification or license to participate in the market.
  • The majority of retail traders use technical or fundamental analysis, which is easier to understand and learn.
  • You do not have to report to regulatory bodies.

Disadvantages of being a retail trader

  • Limited to personal funds. This can make it challenging to open large positions and practically impossible to move the market.
  • Do not have the same resources and access to information.
  • Usually have to pay higher brokerage fees. However, brokers such as AvaTrade and FXCM offer low trading costs to traders like us.

Advantages of being an institutional trader

  • Get to trade large sums of money.
  • Have the best resources and teams of people to get accurate/ timely information.
  • Brokerage fees are extremely low compared to the average retail trader.
  • The majority of institutional trading is quantitative, meaning the speed and objective execution are significant strengths.

Disadvantages of being an institutional trader

  • Institutional traders must risk less % wise due to several factors such as – Regulations, risk limits implemented by the fund, and to prevent leaving a “trace” in the market. This means they are limited in terms of % gains.
  • Require some form of qualification and license to trade on behalf of others.
  • Must be in constant communication with the relevant regulatory body to report balance sheets, profit or loss, positions taken, and the list goes on.

Who moves the market?

It is well known that hedge funds and banks are the biggest influencers in the market. Why? Because money drives price changes, and these institutions have far more than any retail trader.

In past and future articles, you will often hear us saying you must trade in the same direction as the big money because retail traders cannot overpower institutional traders in most cases (GameStop being an exception).

So take the easier path, trade with the big banks and hedge funds.  

Conclusion – What type of trader do you want to be?

I respect that not everyone comes into trading to start a hedge fund and trade 100 billion dollars. Maybe you want to compound your earnings to live comfortably in the future? Or perhaps you do want to be the next JP Morgan?

What is crucial is accepting the limitations on your trading based on where you want to be.

If you want to make the best returns for yourself, you must realize you will always pay more in fees compared to the institutions.

If you want to trade for others, you will have to comply with regulatory requirements constantly.

Keep all these in mind when setting trading goals. Hopefully, this has opened your eyes.

May the market be with you.

Risk Disclaimer: 

  1. The information provided on this website is not intended as a financial or an investment advice and must not be construed as such.
  2. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
  3. FXCM is licensed by the FCA in the UK and other leading regulatory bodies in other jurisdictions. FXCM Markets is not required to hold any financial services license or authorization in Bermuda to offer its products and services.
  4. Plus500 is licenced by the FCA, CySEC, FMA, FSCA, and Seychelles Financial Services Authority.
  5. AVATrade is licenced by the Central Bank of Ireland, ASIC, B.V.I Financial Services Commission, FSCA, and ADGM.
  6. Trading Dispatch may be affiliated with parties included in links.

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