Forex brokers tend to provide special treatment for institutional clients. What constitutes an institutional client and what are the perks?
There are many types of traders on the market. If you are interested in online trading, then it's important to be aware of the different types of market participants in order to understand the market dynamics as a whole. This will also help you know where you stand and how to take advantage of certain market conditions.
Aside from retail traders, forex trading is also dominated by institutional traders. Although they are fewer in number, institutional traders actually have quite a strong power in the market. How so?
What is an Institutional Client?
To put it simply, an institutional client is an entity that can invest a large amount of money in various financial instruments by accumulating the funds of numerous investors. In other words, an institutional client is an entity that invests a significant amount of money either for itself or on behalf of others. Each institutional client has specific investing goals, so they might be varied widely in terms of trading approaches and assets that they invest in.
What institutional clients have in common is that they are not individuals, but entities. They can come in various forms, but here are some of the most common ones:
- Mutual Funds
- Hedge Funds
- Pension Funds
- Sovereign Wealth Funds
- Insurance Companies
- Endowment Funds
In a nutshell, institutional clients are entities that have millions or even billions of dollars to invest in certain assets. This is what mainly separates them from retail traders who usually have much less initial capital to invest. Large individual investors, however, are a bit trickier to define. They are often regarded as a gray area between retail and institutional investors because they may have the big bucks to invest but they don't necessarily work the same way as institutional clients.
Characteristics of an Institutional Client
Essentially, institutional investors must have the following characteristics:
- A legal entity, not an individual.
- Professional and manages assets according to the interests and goals of clients.
- Capable of managing a great amount of funds, which in turn, gives them a greater influence on the market.
- More complex than retail traders as they usually have a sophisticated team of portfolio managers to manage the money and a better infrastructure to trade more quickly.
Impact of Institutional Clients on the Market
Institutional clients are often referred to as 'market makers' because of their huge power on the price dynamics of various financial markets. Institutional investors typically hold a large sum of money and they are often involved in important market events, which then gives them the power to somewhat affect the market with their actions. They can influence the supply and demands of the market, as well as create sudden price movements in stocks, currency pairs, or other assets.
Perks of Being an Institutional Client
Institutional clients generally have greater advantages compared to retail traders as they work as professionals and manage a bigger sum of money. Some of those advantages are as follows:
- Greater access to information and additional services. Institutional investors might have access to research, data, and analysis that are not as easily available to retail investors. Some brokers also provide special services for institutional clients, ranging from lending services to greater leverages.
- More security options. Some securities are only available to investors that meet certain criteria. Due to its large size, most institutional investors can get access to any security they want.
- Fewer restrictions. Institutional investors are regarded as professionals who know perfectly well about what they're doing, so they typically can negotiate better fees and often get fewer restrictions when it comes to trading.
The Risks of Being an Institutional Client
Being an institutional client in an online brokerage firm does come with various benefits. However, that doesn't mean that they are completely safe. Here are some problems that an institutional client might encounter:
- Risk of non-compliance with the legal rights of shareholders, which might be due to the lack of qualified, experienced appraisers. Other than that, this also might be caused by the lack of sophisticated policy on the payment of dividends.
- Issues with the organization's management structure. Institutional investors never work alone, so it can be harder to manage the portfolio and determine the standard quality of the company.
- Higher taxes. Institutional investors have much bigger tax reporting responsibilities than retail traders, who are only required to report their capital gains after they sell their assets.
- Liquidity. Institutional investors must understand that their actions may have a huge impact on the market, so they need to be more careful and precise when making a decision.
- Diversification. Managing a huge sum of money is never easy. They need to diversify their portfolio and keep a balance to manage risks without reducing returns.
How Forex Brokers Treat Institutional Clients
Forex brokers usually aim for the retail market, but that doesn't mean they can't set a special offering for institutional clients. This kind of forex broker typically accepts institutional clients in terms of legal entities and big-cap investors. One of which is ADSS which is previously regarded as ADS Securities.
ADSS is a legal forex and CFD broker because it is regulated in 3 countries: Department of Economic Development (Dubai) 1190047, FCA (UK) 577453 and SFC (Hong Kong) AXC847. Choosing a broker that is regulated by a reputable regulatory body is of utmost importance, as its regulated status helps ensure the trust and competence of the company.
Established in 2011 in Abu Dhabi, ADSS is a leading international broker in the UAE region. As one of the largest and most respected online brokers in the world, ADSS accepts clients from various regions and accepts trading accounts in multiple currencies.
The company is among the best in terms of reputation and reliability, as evidenced by the various awards that ADSS has won. Last year, ADSS won 3 main categories at the 2021 Global Forex Awards, namely Best Forex Trading Innovation – Global, Best Forex Trading Platform - Middle East, and Trusted Forex Broker - Middle East.
ADSS offers its clients a high-quality trading platform, MetaTrader 4 which is very popular among traders. The platform is capable of providing clients with 1-click trading solutions and includes customization for market depth analysis.
Plus, ADSS keeps things simple by offering only three types of live accounts: Spread Betting, Standard, and ECN. All three accounts can be opened by simply depositing $200 using a variety of payment options, including credit card, wire transfer, Skrill, debit card, and more.
In terms of trading instruments, ADSS is one of the best because it offers clients a variety of financial assets in the form of 61 forex pairs, 9 commodities, 28 indices, 4 bonds, 4 cryptocurrencies, and hundreds of stock CFDs, including shares of companies in Saudi Arabia.
Unfortunately, ADSS does not offer any bonuses to their traders. However, clients can participate in partnership programs such as referring to a friend, Introducing Broker, and Fund Manager.
ADSS also provides multilingual support to their clients 24 hours a day, 5 days a week via live chat, email, or their global phone hotline.
ADSS is a leading broker that operates in various regions, including the Middle East, the UK, and other financial markets around the globe. Since 2010, the broker has obtained various prestigious awards for providing high-quality services and trading experience suitable for all types of traders, including both retail and institutional.
Here are some of the best features offered to institutional clients:
- A wide range of instruments. ADSS offers access to multiple assets, including more than 65 currency pairs, precious metals, and CFDs on indices, commodities, treasuries, and stocks.
- Deep liquidity. The broker works with over 30 top liquidity providers in order to optimize the value of your trade. With ADSS, you can get access to deep liquidity with low latency and high levels of flexibility.
- 24/5 customer support. ADSS offers institutional-grade, multilingual customer support that's available 24 hours a day, 5 days a week via email, phone, fax, online chat, and feedback form.
- Sophisticated margin solutions. The advanced platform allows traders to manage risks easily and make use of leverages. There's also an option to use a Net Open Position (NOP) line for trading on a case-by-case basis.
- Powerful trading platform. ADSS partners with the leading trading platform company, MetaQuotes to provide the best trading conditions for traders. The MT4 platform is able to provide fast trade execution and connects you with some of the best liquidity providers on the market.
- White label opportunities. ADSS allows brokers to repackage their services under their own brand name. This allows them to monitor client trading and provide excellent back-office support.
All in all, institutional clients remain an important part of the investing world. They may get various benefits for managing such a large sum of money, but they must also face many risks and difficulties along the way. There are several brokerages that accept institutional clients like ADSS. As explained above, the broker offers great trading features and extraordinary investment opportunities for institutional clients, especially in terms of pricing, liquidity, and support.
Another term to describe non-retail traders is Professional Traders. This term is mostly used by EU-regulated brokers. If you'd like to learn more about this, simply go to Retail Vs Professional Traders in ESMA Brokers.