What is Retail Investor?

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A retail investor, also known as an individual investor, is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and exchange traded funds (ETFs).Retail investors execute their trades through traditional or online brokerage firms or other types of investment accounts. Retail investors purchase securities for their own personal accounts and often trade in dramatically smaller amounts as compared to institutional investors. An institutional investor is an umbrella term for larger-scale investments by professional portfolio and fund managers who might manage a mutual fund or pension fund.

Definition

A retail investor, also known as an individual investor, is a non-professional investor who buys and sells securities or funds, such as mutual funds and exchange-traded funds (ETFs), which consist of a basket of securities.

Origin

The concept of retail investors became more prevalent with the opening of financial markets and technological advancements. In the late 20th century, the advent of the internet and online trading platforms made it easier for individual investors to participate in the stock market.

Categories and Features

Retail investors can be categorized into active and passive investors. Active investors actively manage their portfolios, frequently trading to seek higher returns. Passive investors tend to hold investments for the long term, often choosing index funds or ETFs to achieve market-average returns. Retail investors are characterized by smaller trade amounts and investment decisions often based on personal research or advisor recommendations.

Case Studies

Case Study 1: In the early 2000s, many retail investors invested in tech stocks through online platforms. Despite market volatility, some investors achieved significant returns by holding their investments long-term. Case Study 2: In 2020, retail investors organized through social media platforms, driving a short-term surge in GameStop stock, demonstrating the influence of retail investors in the market.

Common Issues

A common issue faced by retail investors is the lack of professional knowledge, which can lead to poor investment decisions. Additionally, market volatility can have a significant impact on small-scale investors. It is recommended that retail investors conduct thorough research before investing and consider diversifying their investments to mitigate risks.

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Gamma Neutral

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Gamma Hedging

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Technical Indicator

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Technical Analysis

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Basis Risk

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