What is Institutional Trading
Institutional trading consists of the purchase and sale of financial assets by institutions through their traders, Institutional traders are large players managing great sums of trading capital. They include Investment Banks, Hedge Funds, Mutual Funds, Investment Firms, and some large Commercial Corporations. Institutional traders can manage their own funds but also their clients’ funds. This applies to institutional equity trading as well as institutional stock trading, options trading and many other trading instruments.
Institutional operation teams
Institutional traders have teams divided into analysts and operators in such a way that the former are dedicated to making technical and fundamental analysis and the latter study the information and put into practice the strategies and operations that they consider most convenient, when operating with large volumes of operations, traders in institutional trading have access to better prices in the market and can even directly influence the price movement of the assets they exchange
Three aspects of market dynamics that the team focuses on:
(i) Fundamental changes, aiming to incorporate new market conditions
(ii) Demand and supply metrics, aiming to identify key trends
(iii) The order flow coming from their clients
How they control the Market
If the big players commonly known as the market makers believe a market is going to rise, they enter long, as any retail trader would, but by entering with large amounts of capital they can influence the confirmation of that trend, in short money speaks volume and volume determines direction.
Institutional Forex Players
Investment banks– these are financial intermediaries that process and facilitates market based transactions.
Pension and investment funds– Cliental contributions to pension plan are traded for a reasonable return
Major Differences between Institutional and Retail traders
- Institutional traders buy and sell securities for accounts they manage for a group or institution.
- Retail traders buy or sell securities for personal accounts.
- Institutional traders usually trade larger sizes and can trade more exotic products.
Major advantages of institutional traders
- Institutional trading manages large amounts of capital
- Large sums of money gives them much room for diversification
- Due to economies of scale they enjoy lower rates and prices
- Access to large financial news portals
- Use better technological infrastructure
- When they use leverage there is greater capacity