Also known as small investors, retail investors are individual investors who trade various types of securities from a personal account. This is in contrast to investment activity that is conducted on behalf of a third party, including companies or other types of organizations. Typically, the retail investor deals in quantities that are much less than entities which buy and sell only large lots of securities.
A retail investor may pursue securities trading, using several different approaches. The most basic is to manage the portfolio personally, placing orders to buy or sell through a brokerage. With this strategy, the orders are placed with a phone call, via an online interface with the broker, or by crafting one or more standing orders that are executed on behalf of the investor when the provisions of those orders are met.
A retail investor may choose to participate in a managed account situation. Here, an account manager conducts trading activity based on general guidelines that are provided by the investor. For example, if the investor is of a more conservative mindset when it comes to investments, the manager will execute orders for the investor that are relatively safe and offer an equitable amount of return. Typically, the orders do not have to be cleared with the retail investor before they are executed, as long as the manager is following the guidelines provided by the investor.
There is also the option of participating in an investment club. Clubs of this type allow smaller investors to pool their resources, making it possible to take advantage of investment deals that they would not be able to manage on their own. In this scenario, the retail investor invests a certain amount of money in the club, and the pooled funds are used to purchase lots of securities under auspices of the club. Investors receive benefits from the investments based on how much money they invested in each type of security held by the club.
Since the retail investor does not buy and sell securities in large quantities, the impact of individual investors is much less than that of a large institutional investor. This is true both in terms of influencing the movement of prices within a marketplace, and with influencing decisions that are made by shareholders associated with a specific company. In addition, the retail investor usually does not trade securities with the frequency of the institutional investor. This is slowly changing, as access to trading accounts via online portals makes the process of placing orders much more convenient even for casual investors.