Retail Traders

What Are Retail Traders?

13 min read

Who are retail traders and what do they do? Retail trading has grown exponentially in the last few years. The financial markets attract a vast array of people who come from various backgrounds. From retail traders to large hedge funds and institutional investors, the financial markets are a battlefield with various soldiers skilled in dynamic aspects.

But, no matter who the participant is, the one goal and objective they all have in common is to make money. At the end of the day, all that really matters is that you end your day green.

The global market capitalization of stock markets is around ninety trillion! Each day, millions of retail traders try their strategies and different techniques. What’s their goal? To make a profit and benefit financially from this enormous ocean of wealth.

People often think that making money in the stock market is easy and fun. However, the reality is totally different. In order to make serious money from the markets, you must be passionate and dedicated.

You have to want learn and gain experience. Which in time pays off handsomely. As a result, patience is key. Don’t expect to get rich over night. No matter what others are promising.

So, you might be wondering who exactly are retail traders? Well, it’s common people like me and you! We’re retail traders here at the Bullish Bears.

Retail traders use their own capital to try to make a profit from the markets. The bonus? Retail traders usually trade from home.

However, there are various types of market participants who trade in the stock market. So first, let’s understand in detail who retail traders are.

Who Are Retail Traders?

Retail traders are non-professional traders who buy and sell securities for their personal accounts. Most retail traders invest and trade in stocks, bonds, futures and options.

Their account size is dramatically smaller when compared to institutional investors and hedge funds. And retail traders use online brokerage firms to trade. Which results in paying commissions on each trade they make. In other words, a retail trader is a non-professional market maker who usually has small capital and trades part-time; or is in the process of learning the markets professionally.

Generally, retail traders are thought to be a bit less knowledgeable about the markets. Because they don’t have access to the information which large institutional investors typically do.

They’re seen as less disciplined, less skillful, and tend to make emotional errors when compared to professional traders. But despite these drawbacks, retail traders are growing and evolving.

With proper education and necessary resources, this category of market participants has seen a huge increase. The good news is, that there are great companies out there to teach you how to trade.

Retail Trading Casualties of War

However, did you know that 90 percent of retail traders who enter the market tend to lose all of their capital in 90 days? And the broker happily walks away to the bank.

It might seem unfair. But, in reality, 90 percent of traders lose money and only 10 percent are successful. So, do these successful traders have a secret strategy or some holy grail?

Well, I wish there was a secret strategy or holy grail. But there isn’t. Instead, what they have is solid knowledge about the markets, good psychology, a proper trading plan, and a professional attitude towards trading.

New retail traders tend to think of trading as a betting game. Whereas professional traders take it as a serious business. That’s the reason why 90 percent of retail traders go broke in 90 days.

Now, apart from retail traders, there are a lot of other market participants who trade and invest in the financial markets. So let’s understand them in detail. How do they differ from retail traders?

Types Of Market Participants

The stock markets have a vast range of market participants; ranging from small retail traders to large institutional investors and hedge funds. So let’s understand each participant in detail.

Hedge Funds

Hedge funds are a type of partnership between wealthy investors who pool in their money and place a fund manager in charge of the capital. The hedge fund manager then trades the markets using that capital to generate good returns.

These funds are managed pretty aggressively. And they often make use of derivatives and leverage to create higher returns. While investing in a hedge fund may seem attractive, they’re generally accessible only to accredited investors.

Mutual Funds

Mutual funds are large pools of funds collected from various investors. Then they’re invested in a variety of investment vehicles like stocks, bonds, and other securities.

Mutual funds give small and retail investors access to professionally managed and diversified portfolios. There are several kinds of mutual funds that’re divided into categories.

These categories are represented the type of securities they invest in. However, they also charge a fee for managing your money.  Generally, the returns they offer aren’t that attractive.

Insurance Companies

Insurance companies are also a form of institutional investors. They collect the premium from their customers and deploy it in the stock markets to generate returns.

Proprietary Trading Firms

As keeping money idle won’t bring any benefits, insurance companies often use their premiums as capital in the stock markets and invest and trade.

Proprietary trading firms are also known as “Prop trading”. This refers to a financial firm or commercial bank which invests and trades directly in the financial markets.

They employ a large number of professional traders and have huge capital. The investment vehicles that they use can range from stocks, bonds, commodities, forex, etc.

Difference Between Retail Traders and Institutional Investors

Trading in the financial markets can be as simple as pressing the buy or sell button. However, professional traders go for complex and advanced strategies combined with risk management and perfect set-ups. This typically leads to great profits. So let’s understand the differences between retail traders and institutional investors.

Difference in Capital Size for Retail Traders

Large institutional investors and hedge funds have enormous capital to deploy in the financial markets. Whereas retail traders have small and limited capital to trade with.

This difference in capital gives institutions and hedge funds a huge advantage over retail traders. They can trade in a variety of instruments and often have inside information, advanced and superior technology.

In fact, they can place large volume trades. This can impact the share prices to a huge extent. Retail traders can’t place trades that turn the tide of share price.

Attitude and Mental Approach

Professional traders and fund managers take trading as a serious business. As a result, they master and learn the art of investing and trading before they venture into the markets with money.

Whereas retail traders just go online, open a trading account, and start trading the next day without proper knowledge and experience. This leads to huge losses.

In fact, other market participants take advantage of this. The overall attitude and psychology of a professional trader is completely different from a retail trader.

They have to trade other people’s money. How differently would you trade if you were trading money that didn’t belong to you? If it’s a lot different, you need to change your mentality.

Trading Volumes and Position Size

Professional traders and institutions often trade with millions of dollars. Retail traders don’t have that kind of money money as their capital.

So when an institution or fund uses its capital to trade or invest in a stock, it can result in huge movies. That isn’t possible for a retail trader to do with his or her small capital.

This gives institutions and funds a huge advantage. And they use it to their benefit. In general, they use sophisticated trading strategies, proper risk and money management. On top of that, they have the best professional traders working for them.

Types of Financial Markets

Now, apart from the stock market, there are other types of financial markets where people trade. The financial markets include various vehicles like the stock market, forex market, commodities markets, bond markets, etc. All these markets are traded in a similar way and serve a similar purpose just like stock markets; which is to make money.

Commodity markets are a marketplace for buying, selling, and trading in the major commodities of the world. For example, crude oil, metals, agricultural commodities, etc.

Traders and investors deploy their capital in this market with the same objective of generating returns. They do this from the speculation and change in the price of commodities. Let’s take a look at the differences of the financial markets.

Ownership of Assets

The most popular way to trade for investors is to buy and hold. Overtime, the price of the security may rise leading to a profit. However, in the commodities market, there’s no ownership and exchange of commodities.

Instead, all the trading is done in future contracts. Therefore, commodity derivatives are only traded and never owned.

Difference in Volatility

When compared to all the various asset classes, the commodities market tends to be the most volatile. As a result, it can often have extreme price moves; which can be difficult for traders to sustain.

This is due to the lower liquidity in commodity markets. And because it’s affected by the ever-changing external factors. For example, supply-demand and geopolitics;  which are hard to interpret.

Retail Traders And The Forex Market

The Forex market is a marketplace where participants buy, sell, exchange and speculate on currencies. This huge market is made up of banks, central banks, commercial financial companies, hedge funds, retail forex brokers and traders, investors etc.

Out of all the financial markets, the currency market is one of the largest financial markets with a daily transaction of over five trillion dollars.

Exchanges and Over-the-Counter Trading

The market and securities are trades on stock exchanges. This allows participants to sell and purchase securities. The Forex market and its trading is done via over the counter contracts.

Unlike the stock market, there is no centralized exchange for this market. All the transactions are done privately. Thus, completely different from stock market.

Difference in the Way of Trading Securities

There is another major difference between the stock and forex markets. When you’re trading forex, one has to simultaneously buy and sell the currency at the same time.

Whereas it’s completely different in the stock market. This may make the forex market a bit complex to understand for a beginner. However, one has to trade in pairs in the forex markets.

Difference in Liquidity and Volumes

The stock market holds a huge amount of daily volume of traded securities. While the forex market offers a much larger liquidity pool.

In fact, it’s one of the biggest in the financial markets. And this makes it an attractive market for large institutions and funds who have gigantic capital.

Dark Pools are places that equities change hand without traders seeing them until the trade is filled and reported to the tape. Massive volume and big trades tend to happen here and have become a hot target for retail traders to track in recent years.

Advantages Retail Traders Have Over Institutional Traders

  1. Small brokerage accounts
  2. No pressure unless it’s your living
  3. You can limit your risk
  4. No disclosing trades in retail trading

Small Capital for Retail Traders

Sometimes, having small capital can be beneficial for a trader. Some stocks which hold potential are too small to absorb the position size of institutional traders.

But being retail traders, we can easily invest a good amount in such stocks and earn great returns. Big returns are the goal of any trader. However, don’t get greedy.

Being greedy is the best way to blow up your account. And as a retail trader, that usually means you don’t have millions of dollars to play with; or even thousands of dollars. Therefore, you need to be smart about trading! Some traders will use big money tools like Zacks or IBD to help them make trading decesions because these companies do a lot of research. They tend to have a lot of influence too with their large user base of retail investors.

No Pressure to Trade for Retail Traders

One benefit that retail traders have is that they don’t have to trade every day. While institutional traders have to trade daily.

They have to generate returns for their investors. And thus it adds a sense of pressure to the trader’s mind. Think about being forced to trade every day. Even when the setups are terrible.

We’re lucky we can walk away when setups aren’t there. And we should! Don’t trade if you don’t see a play.

Low Risk for Retail Traders

Another benefit that retail traders have is that in each trade, their risk is significantly low. As a result, a loss can be sustained.

Whereas if an institutional investor enters a trade, they can move the market. The risk that they take is far greater and very sensitive to price movements.

No Need for Disclosure

Large funds and institutions are regulated and have to disclose some information about their holdings and activities. This makes it difficult for them to outperform the market.

Whereas being a retail trader, we don’t have to disclose anything. As a result, we can trade according to our preferences.

Disadvantages For Retail Traders

  1. Commissions and fees from brokers
  2. Institutional traders get more information and have better technology
  3. Retail traders have less capital resulting in less leverage

Commissions, Spreads, and Other Costs

Large funds and institutions have an upper hand and often bargain for better execution rates and margin. And they get great deals.

Whereas retail traders don’t have this luxury. In fact, we often end up paying huge commissions and broker fees. However, many brokers have been going the route of $0 commissions.

While we love that, it does affect trades. For example, when ThinkorSwim went to $0 commissions, their trade execution’s suffered. You get what you pay for.

Better Information and Services

Having large capital has its own benefits.  This includes access to the latest and best information before anyone else. And institutions and funds also have superior technology and terminals.

They’re required to trade efficiently and smoothly. However, retail traders can’t afford such facilities. Even the guru’s don’t have the technology that institutions have.

Leverage and Capital Size

Large funds and institutions have access to better leverage. As a result, they can generate a huge return with their capital.

Retail traders have limited margin and their capital size often isn’t adequate to earn a decent and good amount from the markets. However, check out futures and options.


Now, with all the information on retail traders, we hope that you gained some knowledge and are aware of the participants in the financial markets.

With this knowledge, you can prepare yourself better for your trades by tracking the activities of these large funds and institutions. This can give you an edge in the markets.

With proper knowledge and skills, anybody can master the art of trading and investing. However, one has to have the passion and determination to learn. So go ahead and dive into the exciting and amazing world of trading!

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