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| Financial market participants |
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| Organisations |
| Terms |
| Part of a series on |
| Financial markets |
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| Bond market |
| Stock market |
| Other markets |
| Alternative investment |
| Over-the-counter (off-exchange) |
| Trading |
| Related areas |
There are two basicfinancial market participant distinctions,investors versusspeculators andinstitutional versusretail. Action in financial markets bycentral banks is usually regarded as intervention rather than participation.
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 fromKeynesian 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.
An investor is any party that makes aninvestment. However, the term has taken on a specific meaning infinance to describe the particular types of people and companies that regularly purchaseequity ordebtsecurities for financial gain in exchange forfunding an expanding company. Less frequently the term is applied to parties who purchasereal estate,currency,commodityderivatives,personal property, or otherassets.
Speculation, in the narrow sense of financial speculation, involves thebuying, holding, selling, and short-selling ofstocks,bonds,commodities,currencies,collectibles,real estate,derivatives or any valuablefinancial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such asdividends orinterest. Speculation represents one of threemarket roles in westernfinancial markets, distinct fromhedging, long terminvesting andarbitrage. Speculators in an asset may have no intention to have long term exposure to that asset.
An institutional investor is an investor, such as abank,insurance company,retirement fund,hedge fund, ormutual fund, 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.
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:
In the United States, as of 2005 about 57 million households owned stocks, and in total, individual investors owned 26% of equities.[1]
