Shares are widely traded the world over, with billions of transactions taking place every single day. From New York to Tokyo, the world’s major stock exchanges are constantly buzzing with activity, as investors of all shapes and sizes go about their daily business. But with the advantages for both businesses and investors reasonably well established, it begs the question, who actually trades shares, and what are their individual motivations for trading on the markets?

Who Trades Shares?

Shares are traded by a number of different individuals and organisations. By far, the largest volumes of shares are traded by institutional investors. These are the pension funds, insurance funds, banks and other large investment institutions which trade the markets in order to generate a return for their policyholders and investors. Institutional investors deploy expert traders and resources to analyse and research the markets, and they buy and sell in such volumes that their activity most directly shows in the trend of a market. Shares are also traded by smaller funds and even individual investors who are looking for a better return on their capital, offering those self-managing assets the chance to profit from shrewd investment.

Private Investors

The largest category of traders numerically is that of private investors. Private individuals are trading around the world every single day, buying and selling proportions of businesses in which they have no interest other than price speculation. Whether they’re investing for short-term profit, or as part of a wider trading portfolio, private investors provide a crucial function in ensuring the liquidity of the markets and in maintaining global demand for securities, and with the advent of streamlined online trading, private investors at all stages of the wealth pyramid account for a substantial proportion of total global share trading.

In addition to private investors, private individuals may also wish to engage in share dealing to become more involved in the running of companies in which they are stakeholders. Employees, for example, might wish to invest in a share holding in their employer in order to hold some sway over strategic decisions that might affect their future. Similarly, shares in football clubs and other sporting and cultural organisations are often held by fans, who have a direct interest in the performance of the business beyond the pure financials.

Funds

Similarly, private investors are joined by large funds in trading in company securities. Funds, from hedge funds to pension pots are required by virtue of their function to engage in trading activity, and many have billions of assets under management. As a result of the significant value to be had in trading shares and the fact that even stagnant investments deliver a regular yield, funds engage heavily in buying proportions of companies across the spectrum of risk – a truism that has resulted in funds becoming major shareholders in some of the world’s largest companies. Where funds tread, private investors follow, and both can be broadly thought of under the classification of price speculators.

Competitors/Predators

For entirely different reasons, shares are also frequently traded by other companies, including predators and competitors who might wish to gain influence or even the ability to takeover the ownership of the company concerned. This is perhaps best illustrated in an example:

Suppose Company X wishes ultimately to buy over a smaller competitor, Company Y, in order to cement its position as a market leader. Assuming there are no competition law barriers, Company X might want to invest in Company Y, buying up share capital in order to increase its influence over the management and ultimately ownership in Company Y. Beyond a certain level of investment, Company X can make a bid to buy the remainder of the share capital in Company Y, which would allow Company X to incorporate Y into its business as a subsidiary.