Who’s Actually Moving the Market?

If you’ve ever watched the market jump or crash and thought, “Who decided that?”, you’re not alone. It’s easy to assume it’s a crowd of everyday investors, each clicking “buy” or “sell” on their phones. But the truth is, retail traders (people trading their own money) make up a small slice of the action. Most of the heavy lifting in the markets is done by large institutions, hedge funds, and algorithms.

So, do small accounts even matter? And who’s really in control? Let’s break it down.

Retail Traders vs. Institutions

Retail traders (regular people using apps like Fidelity, Schwab, or Robinhood) do participate in the market, and during events like the GameStop saga, they’ve made waves. But on a day-to-day basis, their trades are dwarfed by big players.

Institutional investors (pension funds, mutual funds, insurance companies, hedge funds) manage massive sums of money, often in the billions. Why? Because they invest on behalf of thousands or even millions of people: think of your 401(k), a public pension plan, or a college endowment. All that pooled money gives them the power to buy large positions in companies and that buying power can move prices.

Let’s break it down with an example: If you buy 100 shares of a stock at $50, that’s a $5,000 trade. A large mutual fund might be buying 500,000 shares. Their trade? $25 million. When a fund like that places an order, it can push the price up just by the size of their demand. Their presence alone creates momentum in the stock.

Institutional investors often use research, analysts, and sophisticated strategies that the average investor doesn’t have access to. When they make moves, the market listens. When they make moves, the market listens.

Hedge Funds, Market Makers, and Algorithms

Hedge funds are private investment firms that manage money for wealthy individuals or institutions. Unlike mutual funds or pensions, hedge funds aren’t limited to just buying stocks and hoping they go up. They often use more aggressive strategies like betting that a company’s stock will fall (called short selling), or making big bets on currencies, commodities, or interest rates. Because they aim for higher returns, they also tend to take on more risk. Think of them as high-stakes players looking for an edge.

Market makers are companies that sit in the middle of many trades. If you want to buy a stock, they’re ready to sell it to you, and if you want to sell, they’ll buy it. Their goal is to keep the market running smoothly by always being ready to trade. In return, they make a small profit on the difference between what they buy and sell for (called the “spread”).

Now, let’s talk about algorithms (or algos for short). These are computer programs designed to make trading decisions in a split second. They don’t get emotional, they don’t hesitate, they just follow instructions. For example, an algo might be told: “Buy this stock if it drops by 1% in five minutes.” If that happens, it automatically places the order.

When hundreds of these algos are running at the same time – many of them following similar rules – it can lead to sudden price spikes or drops. That’s why sometimes it feels like a stock moves for no reason: a bunch of algorithms might’ve just triggered all at once.

High-Frequency Trading: Why Prices Sometimes Move for No Clear Reason

High-frequency tradingis like algorithmic trading on turbo speed. These firms use super-fast computers to place thousands of trades per second (not per day, not per hour). The goal? To make a small profit on each trade by buying low and selling slightly higher, over and over again, often within fractions of a second.

Imagine you’re at a farmer’s market, and someone is buying apples from one stall for $1 and selling them at the next stall for $1.01and doing that 1,000 times a minute. That’s the basic idea of high-frequency trading.

These trades happen so quickly that a human couldn’t possibly react in time. That’s why HFT firms use algorithms and direct access to exchanges to execute trades at lightning speed.

Sometimes, when you see a stock price jump up or fall suddenly and there’s no big news HFT could be part of the reason. Maybe a few algos picked up a pattern and triggered automatic trades. Others follow. Before you know it, prices have moved, and it all happened in the blink of an eye.

So when it feels like the market is moving for no reason, sometimes that’s true. It’s not always about news or company performance – it can be about speed, automation, and a race to be first.

In short: it’s not always about the fundamentals. It’s about flow, speed, and which side of the trade is heavier