It is known that the price in financial markets is driven by big market players who have a large capital. These include institutional investors that the direction of the asset movement in many ways depends on.
Understanding their role in the market and having the ability to track down the behavior of these market players allows private traders to increase the number of accurate and high-yield position entries.
1. Institutional Investors: Definition
2. Types of Institutional Investors
3. Difference Between Institutional and Private Investors
4. How to Track Down Institutional Investors
Institutional Investors: Definition
Institutional investors are legal entities that act as intermediaries between private investors and the market. They do not work with equity capital. Instead, they accumulate the funds belonging to small investors in their accounts and make trades in financial markets on their behalf.
In essence, the investing margin is what constitutes their profit. Institutional investors perform a variety of functions ranging from managing and brokerage to auditor ones.
Types of Institutional Investors
Let’s explore what types of institutional investors are out there. In the list below, you can see big players of financial markets that you have probably heard or read about as a part of your forex education:
- Banking organizations.
- Investment funds (closed-end and open-end ones).
- Insurance companies.
- Hedge funds.
- Pension funds.
These organizations allocate capital between different types of assets (stocks, shares in open-end mutual funds, defensive assets) achieving a certain level of profitability and risk.
Difference Between Institutional and Private Investors
It is a known fact that private investors or traders cannot enter financial markets by themselves. This requires big capital which forms in the accounts of institutional investors. These large market players have more strategic opportunities on exchanges and are offered better terms as far as transaction fees go.
The traders need to know that institutional investors:
- Allow individuals who own a small capital to gain access to investment.
- Act as an intermediary between private investors and holders of large blocks of securities.
- Build a well-balanced asset portfolio thanks to big capital and access to different markets.
And most importantly, they have a direct impact on the behavior of the asset prices, as well as the formation of trends and price levels.
How to Track Down Institutional Investors
Institutional investors play a leading role in the creation of the supply and demand for market assets. This is why private traders need to track down the traces left by big market players in the charts and learn how to understand where they will be pushing the price next.
By analyzing the chart, you can figure out where and which range a particular instrument will be moving with.
- By means of their trades, institutional investors form strong price levels and protect them. Based on this, we can see that certain support or resistance levels are working out.
- The presence of channels and trends in the chart, as well as technical chart patterns, are also the doing of the big players. This is why the newbies aren’t recommended to go against the market.
- By tracking down the CFTC’s public reports in the Chicago Mercantile Exchange, you can see where the most positions of the big market players are accumulated. This is an effective albeit somewhat time-consuming way to mark strong levels.
However, there is also another simpler method to see the market profile in the chart and distribution of positions belonging to institutional investors. Simply install the Real Market Volume indicator. This professional tool runs automatically using the Chicago Mercantile Exchange data.
Test out Real Market Volume with free 30-day trial version
The indicator helps to understand:
1. Where strong support levels are and below which values big market players will not let the price drop. That’s the place where long positions are preferable.
2. Where the resistance formed above which the price won’t go. This level may not align with the horizontal line determined based on the technical analysis. To enter the position with surgical precision, make sure to use its signals along with Real Market Volume.
Watch the video below to learn how Real Market Volume work