Over 70% of the trading market activities are led by large financial corporations, while retail traders account for only 5.5%, proving the dominance of large corporations over the humongous number of online traders on thousands of internet-based brokerage platforms.
These firms execute multi-million dollar investments and take significant risks that can highly affect the market, making them an indispensable part of the economy.
Let’s review how institutional investors work and the top financial corporations that dominate the market.
Understanding Institutional Trading
Institutional investors are large corporations that buy and sell securities for their accounts. These companies engage in multi-million trades to improve their financial status rather than merely performing brokerage services that retail brokers offer.
They dedicate their multi-year expertise, advanced analytics tools and teams, and experienced investors and prop traders to make accurate decisions. They utilise their significant resources and capital to execute orders, causing a huge impact on the market.
Institutional investors use advanced fundamental and technical analysis tools to invest in stocks, bonds, currencies and other securities after conducting thorough market research and analysis to provide the most comprehensive insights.
Institutional Market Players
These firms move significant amounts of money for trading purposes. Their considerable activities highly influence the market. Let’s take a look at those market players.
Hedge Funds
These financial firms serve accredited investors and traders. They employ aggressive investment approaches to find high-risk/high-reward opportunities.
Hedge funds deal with multinational corporations and practice the utmost freedom in making financial decisions to invest in assets or complex instruments like derivatives.
These market players utilise hedging market positions that entail executing long and short orders on relatively connected securities to minimise their exposure risk. They can engage in arbitrage trading to capitalise on market imperfections and gain from pricing differences.
However, investing in hedge funds requires significant capital because of their risky approach and the involvement of top-notch investing practices in making decisions.
Pension Funds
Pension funds are entities that assist the working class in investing their pensions and growing the funds based on different pension plans. Experienced traders and entities oversee pension fund investments to ensure accurate market analysis and the right investing decisions.
The main function of pension funds is to help increase the employees’ pension money and offer lucrative returns that offer a comfortable retirement.
Investment Banks
Investment banks offer advisory services for multiple financial activities, such as initial public offerings, monetary transactions, subscriptions, mergers and acquisitions, and organisational restructuring.
They may also act as financial brokers, offering investment opportunities in various asset classes and markets to grow their client’s capital.
Insurance Companies
Insurance companies make tremendous amounts of money by investing premiums collected from customers in various markets and tradeable assets to generate profits and boost their financial status.
They invest in less volatile securities, such as bonds, property, and commodities, over multiple years to obtain long-term sustainable returns.
Mutual and Investment Funds
Mutual funds are pools of money allocated by investors, which fund managers use to invest in financial markets and seek financial well-being. These companies offer various collective investment schemes that respond to different traders’ needs and provide lucrative returns at different risk and return rates.
Unlike hedge and pension funds, mutual and investment funds must follow strict guidelines when investing and trading in the market.
Conclusion
Institutional investors dominate the market as enormous financial corporations use multi-million dollar capital and pools to execute massive market orders and positions.
These financial firms have a significant influence, as their actions can sway the market either way, affecting the overall market and retail traders’ decisions. Hedge funds, investment banks, insurance agencies, pension funds and mutual funds are prime examples of leading firms that move large amounts and execute multi-million dollar investments.
