Published: 2023-12-21
Views: 356
Author: Saalim
Published in: Investment

A retail investor is a non-professional investor. Also known as individual investors, retail investors have an increasing impact on the market.

Anyone who doesn't do investing as a career is considered a retail investor. That's a very wide range of skill levels and specialties.

Depending on their available resources, wealthy retail investors can diversify their portfolios from equities and bonds to hedge funds and private equity.

Retail investors can affect market sentiment, which dictates the tone of financial markets.

Types of Investors

1. Retail or Individual Investor

A retail or individual investor is someone who invests in securities and assets on their own, usually in smaller quantities.

They typically buy stocks in round numbers such as 25. 50, 75 or 100. The stocks they buy are part of their portfolio and do not represent those of any organization.

However, many individual investors make trades based on their emotions. They let fear and greed dictate the stocks they buy.

It is not the most optimal way to trade as stock markets are incredibly volatile, and it is often hard to predict the direction in which the stock will move.

2. Institutional Investor

An institutional investor is a company or organization that invests money to buy securities or assets such as real estate.

Unlike individual investors who buy stocks in publicly traded companies on the stock exchange, institutional investors purchase stock in hedge funds, pension funds, mutual funds, and insurance companies.

They also make substantial investments in the companies, very often reaching millions in dollars in value. The institutional investor is not the beneficiary of the earnings from the investment, but the company as a whole act as a beneficiary.

Types of Retail Investors

1. Stock traders

Stocks are securities that interested parties invest in to acquire a share of a particular company. Stocks are one of the most popular modes of investment.

Retail investors typically trade in stocks to earn dividends and grow their capital.

They can also use stocks as a long-term investment that can mature a profit as the company's valuation rises. Stocks come in various forms, including blue-chip, income, growth, and value stocks.

2. Cryptocurrency Traders

Cryptocurrency is one of the leading innovations in financial technology. It serves as a virtual representation of value that global users can use to establish transactions. Retail investors invest in cryptocurrency as a store of value and with the speculation of rising value.

 When such virtual currencies rise in value, investors can trade them to gain higher returns on their investments. They can also buy more currency during a drop in value and hold on to them for a possible future rise in value

3. Bond Buyers

Bonds are investment instruments investors can acquire from corporations or governments. Retail investors acquire these bonds to safeguard their capital for a specific period.

This is the bond's maturity period, after which the investor receives their capital with a percentage of interest.

Essential Skills for Retail Investors

Here are some essential skills for success as a retail investor:

1. Analytics Skill

Analytical skills are a set of competencies that help you evaluate data and make nuanced connections between concepts. Data form one of the strongest indicators of viable investment opportunities.

This makes it essential for retail investors to develop strong analytical skills for recognizing trends in data, making projections, and reading charts or indicators.

Analytical skills also help you recognize unique opportunities to apply technical analysis findings.

2. Research Skill

Research skills are the strengths you apply when sourcing information on various subjects. Information is vital to making viable investment decisions. Research skills can help you gather all relevant information concerning an investment opportunity.

 You can also improve your research skills by considering multiple information sources, setting notifications for announcements, and maintaining awareness of market trends.

Your research can also strengthen your investment decisions by helping you recognize patterns and react promptly to changes in the market.

3. Concentration Skill

Concentration is a skill that helps you maintain focus on a task and remain attentive to changes. This skill is vital to your success as a retail investor, enabling you to identify relevant information while avoiding distractions.

You can also strengthen your focus by specializing in a specific type of investment. For instance, you can concentrate on the cryptocurrency market when making investments.

Such a specialty allows you to deepen your technical knowledge within a field and focus your energy and resources.

4. Emotional Intelligence Skill

Emotional intelligence refers to the skills you apply to recognize the emotional state of yourself and others. Self-awareness and control are essential components of this skill for your success as a retail investor.

With self-awareness, you can identify your emotional response to investment opportunities and curtail your biases. Self-control also helps you stick to your investment strategy and avoid emotional investments.

Retail investing usually comes with a solid emotional attachment to your capital.

While this is only natural, emotional intelligence can help you make more objective and sustainable decisions.

Individual vs. Institutional Investors

The two types of investors differ in a number of ways, including:

1. Access to Resources

Institutional investors are very large companies and can take advantage of numerous resources such as financial professionals to oversee their portfolio on a daily basis, allowing them to enter and exit the market at the right time.

Individual investors need to do the same on their own through research and available data.

2. Decision-Making

With institutional investors, the investments are usually overseen by different individuals in the organization.

For example, the board of directors makes the decision-making process more challenging as people are likely to propose different ideas on what trades to make.

As an individual investor, you are your boss and the sole decision maker when it comes to buying and selling shares.

3. Identifying Investment Opportunities

Since institutional investors are able to access a large number of resources and capital, they are privy to investment structures and products available before anyone else.

By the time investment opportunities reach from the hedge fund or private equity funds to the individual investor level, the rest are able to use second-hand investment strategies that have already been implemented by the large institutions.

Please feel free to share your comments in the comment box below if this well-researched post has given you some new information.