Institutional investor

An institutional investor is an entity that trades securities in such large volumes that it qualifies for transactional discounts. This entity typically trades on behalf of its members. An institutional investor may have an in-house research staff, and may also rely on the advice of outside specialists in making investment decisions. It is more likely to engage in sophisticated trading strategies than retail investors. Examples of institutional investors are:

  • Banks
  • Endowment funds
  • Hedge funds
  • Insurance companies
  • Life insurance companies
  • Mutual funds
  • Pension funds

Because of the high trading volumes initiated by these entities, their transactions comprise a large part of the total traffic flowing through the various stock exchanges. Given their high trading volumes, institutional investors typically avoid purchasing the securities of smaller companies, in order to avoid significant ownership percentages.