The Forex market is a highly frequented but also quite diverse market. Various types of traders engage in it, some of whom do not aim for personal profit but pursue higher goals. This category includes, for example, central banks, which intervene in the market (often with very significant effects) not to seek a gain (it would be a paradox) but to integrate monetary policy measures or prevent imbalances. For how this market stacks up against equities, see this side-by-side comparison.
Retail and Institutional Traders
The world of common mortals, so to speak, is populated by two different types of traders: retail traders and institutional traders.
Retail traders are "individual" traders, i.e., investors who, on their own account, invest with the intention of making their capital bear fruit. Broker users, for example, are largely retail traders. If you're reading this article, you're probably a retail trader too (without knowing it!).
Institutional traders aim for profit, just like retail traders, but they don't invest on their own behalf but on behalf of an organization. This can be a bank, a credit institution, an investment company, a particularly structured company, and so on. Their size also changes where they trade: in equities the biggest institutional orders are often matched in dark pools, private systems built to hide the size of a block until it has been filled.
The Capital Gap
Apart from the elements set out in these simple definitions, what are the differences between retail and institutional traders? The biggest difference lies in capital. It's obvious that institutional traders have a very large capital at their disposal, since they have an organization behind them that is generally "used" to handling large sums of money. Retail traders, being individual traders, and having only their own capital at their disposal, necessarily invest smaller amounts. Retail traders can take steps to limit the risks this capital gap creates; see how to counter these liquidity-hunting tactics.
Professional Experience
Another difference concerns the degree of professionalization. Institutional traders, this is equally obvious, do it for a living. They are paid to invest and make money bear fruit, and they have been trained to achieve this goal. Retail traders, on the other hand, excluding positive peaks, do not reach that degree of professionalism, not on average at least.
Tools and Market Access
Finally, the difference in tools should be noted. Institutional traders do not use "commercial" brokers but rather ECNs, which are much more difficult to use but offer guarantees about prices and provide a more or less complete overview of market depth. They are generally more inclined to practice fundamental analysis, since they can access information before others.
