Institutional vs Retail Investors: Points of Differentiation

The cryptocurrency industry used to be a space for retail participation until recently. While institutions are taking steps, complete adoption is still in progress. Once it becomes evident that the sector is reaching a tipping point, we can expect a significant influx of institutional involvement in crypto.

Today, there are many services and tools for institutional traders, meeting their requirements and allowing them to manage large capitals. For example, the Binance institutional cryptocurrency exchange opens unparalleled access for companies and businesses to join the crypto space and make a profit.

Who are Institutional Crypto Participants?

These are mostly companies and businesses from the real world, dealing with finances, technologies, and payment services. Banks actively join the field, adding crypto desks for their clients. Hedge and pension funds invest in crypto from the part of their clients. Payment services integrate digital payment services for crypto-oriented clients. Large institutions and corporations buy Bitcoin and other assets for the long term. 

Another way for companies to participate in the crypto market is to provide market maker program. Having significant capital, they are able to pour it into markets and thus, support liquidity for trading pairs. In return, they receive profits from bid-ask spreads and traders’ fees.

Retail Investors vs Institutional Investors

Let’s compare today’s institutional crypto investments with retail traders and wrap the results into a tab:

Parameter	Retail	Institution
Investment size	Manage much less significant trading amounts, their trades don’t have much impact on liquidity and prices in the market.	Inject significant investments in crypto, increasing liquidity and even affecting spot prices. Billions under management.
Risks	Take a risk with their own funds. However, that does not mean their risk is low.  The difference is just whose funds you use – own or clients’.	Often use clients’ funds, so they bear a bigger responsibility and require serious risk management and top-notch institutional services.
Strategies	Retail traders use simple strategies.	Crypto institutional trading implies the use of analytics-driven trading strategies, based on in-depth research and high-quality data.
Custody	Trade their own funds and thus, own them.	After all, real asset owners are investors’ clients, on whose part they manage funds.
Compliance	Things are not that strict for retail traders, compared with institutions that are always under regulation scrutiny.	Institutions must adhere to corporate rules, strict governance, and compliance.

Table: Retail vs institutional investors

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Conclusion

Crypto trading used to be known as the space for tech-savvy people and crypto enthusiasts. However, with the large companies tapping into the industry, things are changing. Retail traders and institutions have some differentiations in the way they invest, starting from the size of capital and compliance with regulations to custody services and strategies.