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Do Retail Traders Move Markets? (Where They Do and Don’t Explained)

Last Updated on 10 February, 2024 by Trading System

Retail traders are individual traders who trade their personal accounts from the comfort of their homes. There has been a debate about whether retail traders have the capacity to move stock prices; if you have ever found yourself wondering whether retail traders move markets, you will hopefully find your answers here.

In markets with huge volumes, such as large and medium cap stocks, individual retail traders do not move the market by themselves. But the story is different for markets will very low volume, where relatively small orders can significantly affect the market price.

Obviously, there’s more to price movements than retail traders and the volume of their trades. But before we go into how the market moves, let’s discuss the different types of traders in the market.

Types of Traders in the Market

There are basically two types of traders in the market: retail traders and institutional traders. The retail traders buy or sell stocks for their personal accounts, while the institutional traders trade for institutions like pension funds, mutual funds, hedge funds, banks, insurance companies, exchange-traded funds (ETF), and others.

Institutional traders usually trade in big volumes and have access to IPOs and complex securities like forwards and swaps. Also, they can negotiate their transaction fees and may even send orders directly to the exchanges. Retail traders, on the other hand, must go through a broker, and they don’t usually trade in large volumes.

What Moves the Market?

Do Retail Traders Move the Market?
Do Retail Traders Move the Market?

A stock price moves as a result of an imbalance in the demand and supply of the stock. When there are more willing buyers than sellers, the price will go up to meet more willing sellers. The same happens in the other direction when there are more willing sellers than buyers. However, what matters is the volume of buy and sell orders and not the number of traders.

There are two prices in the market — ask and bid. The ‘ask price’ is the lowest advertised price a seller is willing to sell at, while a ‘bid price’ is the highest advertised price a buyer is willing to buy at. When the current ask price is taken out by a matching buy order, the next ask price, which is higher up, becomes the new market price. And when that one is taken out, the next higher ask price becomes the market price and so on. So, as buy orders take out the sell orders, price move up.

On the other hand, when the current bid price is taken out by a matching sell order, the next lower bid price becomes the new market price. If sell orders keep taking out the buy orders at the bid prices, the market price will move down.

How Institutional Traders Move the Market

Institutional traders put large orders in the market, and these can be market orders, stop orders, or limit orders. Because of the volume of their trades, when they put out a market order (a buy or sell order at the market price), it takes out all the opposing orders in the market and moves price to the next level.

For example, if a stock is selling at $20.21 (ask price) and an institutional trader puts out a market order to buy 20,000 shares of a stock, it will take out all the sell orders at $20.21 (say 2000 shares) and move to the next one (say 3000 shares at $20.29) and continue like that until all the 20,000 shares are bought. The order that filled the 20000th share may be selling at $20.91, so this will be the new market price.

However, institutional traders are smarter than this; they know that their huge orders can move the market significantly and get them filled at poor prices. So they mostly put out limit orders and then push the market in opposite directions to attract huge market orders to where their limit orders lay in wait.

Situations Where Retail Traders Can Move the Market

As you have seen, price movement is influenced by huge order volume, and an individual retail trader is unlikely to have the capacity to match institutional traders in trading volumes.

Even though we know that individual retail traders don’t trade in volumes that are big enough to move stock prices in a market with a reasonable volume, there are occasions when an individual trader can move the price with his relatively small order.

Furthermore, when there’s an overwhelming sentiment in the market, the aggregated retail orders may be large enough to move the market. The following are situations where retail traders affect market prices.

After-hours trading

In the US, the regular stock market hours are between 9.30 a.m. to 4.00 p.m. ET. After-hours stock trading, as the name suggests, starts after the stock markets have closed for the day at 4.00 p.m. and can last till 8.00 p.m. ET. Trading during this period is conducted via electronic communication networks (ECN).

After-hours stock trading is not as liquid as market hours, even when there is important news like earning release. Although the news may spike volume a little, volume generally thins out around 6.30 p.m.

The number of traders participating in the after-hour market is quite small, and most of the time, institutional traders don’t trade at this time. Because of the fewer amount of shares being transacted, a retail trader’s small orders can significantly affect the stock price. In addition, the poor liquidity can affect the bid-ask spread which also affects the price.

Penny stocks

Small-cap stocks are known to have less volume and attract fewer traders. As a matter of fact, due to this lack of liquidity, institutional traders and investors tend to avoid penny stocks. They understand that there may not be enough traders to take the opposite side of their trades.

So it’s mostly retail traders and investors that deal on penny stocks, and the relatively small orders from individual investors can move the price in any direction. This may explain why penny stocks are highly volatile, with several price swings each day.

In a review study conducted by Brad Barber and his colleagues at the University of California — which was titled, “Do retail trades move markets?” — they concluded that small-cap stock prices rise when retail traders are net buyers and fall when retail traders are net sellers.

Prolonged Market Trends

When the stock market is in a trend — bullish or bearish — there seems to be a sort of general consensus about the direction the market is headed. So everyone is trading in that direction, both the institutional players who initiated the trend and the retail traders who just want to ride the trend.

With time, the trend starts getting overextended, and stocks become overvalued. The institutional traders (who are professionals, by the way) will notice that and reduce their exposure, but the retail traders will still be taken by the overwhelming sentiments in the market.

In fact, if you were to take a sentiment analysis of the retail traders at this time, you will find that aside a few contrarians, a great majority of retail traders are trading in the direction of that trend. So with institutional traders already bailing out, it’s the aggregation of retail orders that move the market at this period.

In a bull market, greed and fear of missing out rule the retail traders at this time. Later on, those who were on the sidelines would jump into the market, leading to what is known as buying climax — which will inevitably be followed by a market reversal. The exact opposite happens in a bear market where fear of losing everything dominates, leading to panic selling and capitulation and, eventually, a market reversal.


Although retail traders can’t individually move stock prices in markets with large volumes, there are occasions when their orders can affect market prices. After-hour trading, penny stocks, and prolonged market trends are some of the situations where retail orders can significantly move market prices. On the other hand, institutional traders usually trade in large volumes and can almost always move the market in any direction they want.


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