Well-funded institutional investing firms - each with big budgets for research, technology and investments - have notoriously been in the driver's seat when it comes to moving the market. A small percentage change in large institutional buying or selling, for example, can immediately affect prices, driving a market higher or leaving it in a free fall. The increase in the number of small investors, coupled with changes in technology, however, could change market dynamics and allow small investors to actually move the market. (These vehicles have gotten a bad rap in the press. Find out whether they deserve it.
Build It and They Will Come
Not that many years ago before the rapid advancements helped by the internet, individual investors were at the mercy of stock brokers to gain important and timely information regarding investment choices, or to place trades in the stock market. Investors had to compete for the broker's time and expertise, often losing out on profits while waiting for advice or to place a buy or sell order.
The advent of the internet, technical charting platforms and discount online brokerage firms have turned the once-tedious, pricey and inefficient task of placing orders into a precise, affordable and efficient method by which individuals can participate in the financial markets. The ease of online investing and a growing interest in self-directed investment decisions have led to a significant rise in the number of small investors.
Big Enough to Move the Market?
With this growing participation from online investors, then, is it reasonable to assume this group has the buying power to move the markets? Not necessarily. In most cases, the institutional players - including investment banks, insurance companies, pension funds, hedge funds and mutual funds - significantly outweigh the small investors in terms of both volume and dollars. They are able to trade in large enough sizes to have an influence on prices. Despite the growing popularity of the individual investor, the institutional investors tend to be the ones with the most power to move the market.
Market participants of all types - whether large hedge funds or individual traders - contribute to market liquidity and collectively give each market its shape. While many of today's popular markets cannot be pushed around by individual investors, as technology improves and small traders have access to a growing number of field-leveling advantages (including advanced market analysis tools and direct access trading) the ability for small investors to move the market could eventually increase.http://financialedge.investopedia.com/financial-edge/0611/Do-Small-Investors-Move-The-Market.aspx
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