6. Who really moves the market: the types of investor
Level 1: Foundations of Algorithmic Trading
When you look at a price chart, what you are really seeing is the outcome of a fight between several very different types of participant, each with completely different objectives and tools. Recognizing them helps you understand why price moves the way it does.
Institutional investors, such as BlackRock, Vanguard or Fidelity, manage pension funds, mutual funds or insurance company assets. They aim to maximize the return on large sums of money with diversified, long-term strategies, combining fundamental analysis, quantitative models and portfolio optimization.
Retail investors are individuals trading through online broker platforms or automated managers (robo-advisors). They tend to use simpler strategies — technical analysis, or buying stocks they consider undervalued — although they increasingly turn to algorithmic tools as well.
High-frequency traders (HFT), such as Citadel Securities or Virtu Financial, seek to profit from tiny price differences in fractions of a second. They compete on execution speed, not on long-term forecasting: they use statistical arbitrage, market making and, in many cases, keep their own servers physically next to the exchange's in order to gain milliseconds.
Hedge funds, such as Bridgewater, Renaissance Technologies or Two Sigma, chase high returns by combining sophisticated strategies — long-short equity, global macro, statistical arbitrage — and typically use leverage and short selling, something most retail investors cannot or should not do.
Day traders operate within a single session, closing all their positions before the market closes, and rely mainly on technical analysis and short-term chart patterns.
And quantitative traders — the profile this course aims to help you develop — use mathematical models and data to find opportunities, rather than intuition or news. Firms like Renaissance Technologies or D. E. Shaw are the extreme example of this approach: they automate almost the entire process, from detecting the signal to executing the trade.
No type of participant acts in a vacuum: the price you see each day is the sum of all their decisions moving at once, with time horizons and objectives that often clash. Part of understanding the market is understanding who you are trading against — or alongside — at any given moment.