There are two basic financial market participant distinctions, investors versus speculators and institutional versus

retail Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholes ...

. Action in financial markets by central banks is usually regarded as intervention rather than participation.

Supply side versus demand side

A market participant may either be coming from the supply side, hence supplying excess money (in the form of investments) in favor of the demand side; or coming from the demand side, hence demanding excess money (in the form of borrowed equity) in favor of the supply side. This equation originated from Keynesian advocates. The theory explains that a given market may have excess cash; hence the supplier of funds may lend it; and those in need of cash may borrow the funds supplied. Hence, the equation: aggregate savings equals aggregate investments. The demand side consists of: those in need of cash flows (daily operational needs); those in need of interim financing (bridge financing); those in need of long-term funds for special projects (capital funds for venture financing). The supply side consists of: those who have aggregate savings (retirement funds, pension funds, insurance funds) that can be used in favor of demand side. The origin of the savings (funds) can be local savings or foreign savings. So much pensions or savings can be invested for school buildings; orphanages; (but not earning) or for road network (toll ways) or port development (capable of earnings). The earnings go to owner (Savers or Lenders) and the margin goes to the banks. When the principal and interest are added up, it will reflect the amount paid for the user (borrower) of the funds. Thus, an interest percentage for the cost of using the funds.

Investor versus speculator

Investor

An investor is any party that makes an

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

. However, the term has taken on a specific meaning in

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

to describe the particular types of people and companies that regularly purchase equity or

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

securities for financial gain in exchange for funding an expanding company. Less frequently the term is applied to parties who purchase real estate,

currency A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...

, commodity derivatives,

personal property Personal property is property that is movable. In common law systems, personal property may also be called chattels or personalty. In civil law (legal system), civil law systems, personal property is often called movable property or movables—a ...

, or other assets.

Speculation

Speculation, in the narrow sense of financial speculation, involves the buying, holding, selling, and short-selling of

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

s, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable

financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form ...

to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

. Speculation represents one of three market roles in western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset may have no intention to have long term exposure to that asset.

Institutional versus retail

Institutional investor

An institutional investor is an investor, such as a

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

, insurance company, retirement fund,

hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...

, or

mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...

, that is financially sophisticated and makes large investments, often held in very large portfolios of investments. Because of their sophistication, institutional investors may often participate in private placements of securities, in which certain aspects of the securities laws may be inapplicable.

Retail investor

A retail investor is an individual investor possessing shares of a given security. Retail investors can be further divided into two categories of share ownership: # A Beneficial Shareholder is a retail investor who holds shares of their securities in the account of a bank or broker, also known as "in street name". The broker is in possession of the securities on behalf of the underlying shareholder. # A Registered Shareholder is a retail investor who holds shares of their securities directly through the issuer or its transfer agent. Many registered shareholders have physical copies of their stock certificates. In the United States, as of 2005 about 57 million households owned stocks, and in total, individual investors owned 26% of equities.Harris L. (2010)
Missing in Activism: Retail Investor Absence in Corporate Elections
''Columbia Business Law Review''

References

{{reflist Financial markets