Market Participants

There are different types of market participants in the stock markets. We can clearly distinguish between them based on their nature and purpose of actions:

Based on Purpose:

1. Speculators – To speculate means to bet on the direction of a particular stock/security. Speculators generate profits by anticipating future price movements.

2. Hedger - A hedger is a market participant who intends to offset his exposure and protect himself from adverse price movements. For instance, an Airline Company might go long in futures contracts on Crude Oil to protect itself from a rise in input costs.

3. Arbitrageur - An arbitrageur is a person who tries to make a riskless profit by simultaneously buying and selling the same financial security on different exchanges/markets.  These days arbitrage opportunities rarely exist because of high transaction costs & algorithmic trading.

Based on Nature:

1. Foreign Institutional Investors (FIIs)- FIIs are big foreign institutional investors like foreign banks, corporates, insurance companies, mutual fund houses, and even governments of foreign countries that are bringing foreign capital to India for investment. They also invest large sums of money and usually stay invested for an extended period. These players provide a lot of liquidity in the markets. 

2. Domestic Institutional Investors (DIIs)- DIIs are big institutional investors like Indian banks, corporates, insurance companies, mutual fund houses, and even the government of India, who are investing in the stock market. They pour large sums of money into the stock market. 

3. Retail Investors- Investors like you and me participate in the stock market for trading, investment, gathering for retirement funds, and wealth creation. Retail investors have a minimal capacity for buying and selling shares. They usually invest in markets with low funds compared to others. They are primarily salaried individuals or small self-employed businessmen. 

4. High Net Worth Individuals (HNIs)- HNIs are the big, influential players in the stock market who have capital of ₹2 crores or more invested in the stock market. They usually invest with significantly large funds. Common names we hear in India are Rakesh Jhunjunwala, Vijay Kedia, Dolly Khanna, etc. They all come under the category of non-institutional investors or HNIs.