Retail investing is buying stocks, bonds, or other securities as an individual person, not as a professional or institution

Retail investing means you own a piece of a company or a loan to a company, and you make the buy-and-sell decisions yourself. You are not a hedge fund manager, a pension fund, or a bank trading desk. You open an account at a brokerage — a company that lets you trade — deposit your own money, and choose what to buy. The brokerage executes the trade and holds the securities in your account.

The term "retail" distinguishes individual investors from institutional investors, who manage money for organizations and often have access to lower fees, research teams, and trading tools that individuals do not. A retail investor might own 100 shares of Apple. An institutional investor might own millions of shares on behalf of a university endowment or pension plan.

Key Takeaways

  • Retail investing means you buy and sell securities yourself through a brokerage account, using your own money and your own decisions.
  • You can start with as little as a few hundred dollars at most brokerages, though some have no minimum deposit.
  • Common securities for retail investors include stocks, exchange-traded funds (ETFs), mutual funds, and bonds.
  • You pay fees to the brokerage for trades, account maintenance, or advisory services, depending on the account type and the brokerage.
  • Retail investors have less access to research, lower trading volumes, and often pay higher fees per trade than institutional investors do.

How a retail brokerage account works

You open an account at a brokerage by providing your name, address, Social Security number, and employment information. The brokerage verifies your identity and opens the account. You then transfer money from your bank account into the brokerage account — this is called funding the account.

Once the money is in your account, you can place an order to buy a security. You tell the brokerage what you want to buy (for example, "100 shares of Microsoft"), and the brokerage finds a seller and executes the trade. The security appears in your account, and the cash leaves. When you sell, the reverse happens: the security leaves your account, and the cash arrives. The brokerage charges you a commission or fee for each trade, though many brokerages now offer commission-free stock trades.

Your account statement shows what you own, what you paid for it, what it is worth now, and your total account value. You can check this online anytime. If you want to withdraw money, you request a transfer back to your bank account, which usually takes one to three business days.

Types of securities retail investors can buy

Stocks are shares of ownership in a company. When you buy one share of a company, you own a small piece of that company. If the company does well, the stock price usually rises. If it does poorly, the price usually falls. Some companies also pay dividends — small cash payments to shareholders — but many do not.

Exchange-traded funds (ETFs) are baskets of many securities bundled together. An ETF might hold 500 different stocks, or 100 different bonds, or a mix. You buy one share of the ETF and own a piece of all the securities inside it. ETFs are popular because they spread your money across many companies at once, which reduces risk.

Mutual funds work similarly to ETFs — they hold many securities in one fund — but they are priced once per day instead of trading throughout the day like stocks and ETFs do. A professional manager usually decides what to buy and sell inside the fund.

Bonds are loans. When you buy a bond, you are lending money to a company or government. They promise to pay you interest and return your money on a set date. Bonds are generally less risky than stocks but also produce lower returns.

Costs and fees in retail investing

Most brokerages charge no commission on stock and ETF trades, meaning you pay nothing per trade. However, you may pay other fees. Some brokerages charge a monthly account maintenance fee if your balance is below a certain amount. Some charge fees to transfer money out of the account or to close the account.

If you buy a mutual fund, you pay an expense ratio — a yearly percentage fee that comes out of the fund's value. A fund with a 0.5% expense ratio costs you $5 per year for every $1,000 you have in that fund. Expense ratios vary widely, from under 0.1% for index funds to over 1% for actively managed funds.

Some brokerages offer advisory services, where a person or algorithm recommends what to buy. These services charge a fee, usually a percentage of your account balance per year. A financial advisor charging 1% of assets takes $100 per year from a $10,000 account.

How retail investors differ from institutional investors

Institutional investors manage money for organizations — pension funds, university endowments, insurance companies, hedge funds — and they have advantages that individual retail investors do not. They can negotiate lower fees because they trade in huge volumes. They have access to private research and trading tools. They can trade after regular market hours. They can short-sell (bet that a stock will fall) more easily.

Retail investors trade during regular market hours, pay standard fees, and have access only to public information and research. However, retail investors also have advantages: they can hold positions for as long as they want without pressure to show quarterly returns, they can invest in small amounts, and they can make decisions based on their own time horizon and risk tolerance rather than an organization's requirements.

Getting started with retail investing

To start, you choose a brokerage. Common brokerages include Fidelity, Charles Schwab, E-Trade, Robinhood, and Webull. Each has different fees, tools, and account minimums. Some have no minimum deposit. Others require $500 or $1,000 to open an account. Compare a few to see which fits your needs.

You then open an account, fund it, and decide what to buy. Many beginners start with a broad ETF that tracks the entire stock market, such as an S&P 500 index fund, rather than picking individual stocks. This approach spreads risk across hundreds of companies and requires less research.

Before you invest, understand that the value of your account will go up and down. If you sell when the value is down, you lock in a loss. If you hold through downturns, you have a better chance of recovering. Most financial advisors recommend investing money you will not need for at least five years.

Tax considerations for retail investors

When you sell a security for more than you paid for it, you have a capital gain. The IRS taxes capital gains. If you held the security for more than one year, it is taxed at the long-term capital gains rate, which is lower than your regular income tax rate. If you held it for one year or less, it is taxed as ordinary income.

If you sell for less than you paid, you have a capital loss. You can use capital losses to offset capital gains, which reduces your tax bill. Some brokerages offer tax-loss harvesting tools that automatically sell losing positions to offset gains.

Dividends are also taxable. If a company pays you a dividend, you owe tax on it in the year you receive it, even if you reinvest the dividend back into the stock.

Frequently Asked Questions

How much money do I need to start retail investing?

Many brokerages have no minimum deposit, so you can open an account with $1 or $10. However, some brokerages require $500 or $1,000 to open an account. Once your account is open, you can invest in fractional shares — pieces of a share — so you can buy a partial share of an expensive stock with a small amount of money.

Can I lose more money than I invest?

If you buy stocks or ETFs and hold them, the worst that can happen is the price falls to zero and you lose your entire investment. You cannot lose more than you put in. However, if you use margin (borrowed money) or trade options, you can lose more than your initial investment. Most beginning retail investors should avoid these strategies.

Is retail investing the same as day trading?

No. Retail investing is a broad category that includes anyone buying and holding securities as an individual. Day trading is a specific strategy where you buy and sell the same security within one day, trying to profit from small price movements. Day trading is riskier, requires more time and skill, and triggers higher taxes and fees. Most retail investors are not day traders.

Do I need a financial advisor to retail invest?

No. You can research and make decisions on your own using free resources, books, and online courses. However, a financial advisor can help you build a plan, choose investments that match your goals, and stay disciplined during market downturns. Advisors charge fees, so compare the cost against the value they provide.

What happens if my brokerage goes out of business?

Your securities are protected by the Securities Investor Protection Corporation (SIPC), which insures up to $500,000 per account at a brokerage that fails. Your securities are held in your name, not the brokerage's name, so they remain yours even if the brokerage closes. Choose a well-established brokerage to reduce this risk further.