Firstly nobody know how institutions trade whoever sells you institutional trading is selling you the dream but here is the main difference between these two.
1. Institutional Trading
Institutional trading involves large financial institutions such as banks, asset management firms, hedge funds, pension funds, and insurance companies. These institutions trade on behalf of themselves or their clients, which may include individual investors or other institutions. Institutional traders have access to substantial resources, expertise, and specialized tools for analysis and execution. They typically trade in large volumes, aiming to maximize returns for their clients or shareholders. Institutional trading often involves complex strategies and involves high-frequency trading, algorithmic trading, and order routing to optimize execution.
2. Retail Trading
Retail trading includes individual investors or small traders who trade directly in the financial markets. Retail traders typically trade their personal funds, savings, or retirement accounts. They may operate through online brokerage platforms or traditional brokers. Retail traders generally have limited resources, relatively smaller capital, and less sophisticated tools compared to institutional traders. Their trading strategies often involve buying and selling securities, such as stocks, bonds, options, or mutual funds, aiming for personal investment growth or income generation. Retail traders usually focus on shorter-term investments and may also participate in day trading or swing trading.
Key differences between institutional and retail trading:
1. Size
Institutional traders trade in larger volumes and have significant capital compared to retail traders who have relatively smaller trading volumes and capital.
2. Resources
Institutional traders have access to extensive research departments, dedicated teams of analysts, and advanced trading infrastructure. Retail traders rely on publicly available information and basic trading platforms.
3. Expertise
Institutional traders are highly skilled professionals with extensive knowledge and experience in finance and trading. Retail traders often have limited financial knowledge and may not possess professional trading experience.
4. Trading Strategies
Institutional traders often employ complex trading strategies, including algorithmic trading, high-frequency trading, derivatives, and arbitrage. Retail traders focus more on traditional investing, including stock picking, mutual funds, and long-term investing.
5. Market Impact
Institutional traders' large volume trades can have a significant impact on the market, resulting in price movements. Retail traders' impact on the market is relatively smaller, and their trades do not significantly affect prices.
It's important to note that with the evolution of technology and online trading platforms, retail traders now have access to more advanced tools, trading education, and research resources, narrowing the gap between institutional and retail trading capabilities.