Financial Industry Regulatory Authority (FINRA) Practice Exam

An individual who buys securities for personal investment is classified as a retail investor. This term specifically refers to individual investors who purchase stocks, bonds, mutual funds, and other securities for their own personal accounts, rather than for a business or institutional investment purpose. Retail investors typically engage in smaller transactions compared to institutional investors and are considered to be on the opposite end of the spectrum from institutional investors, such as banks, insurance companies, or pension funds, which usually handle much larger amounts of capital. In contrast, accredited investors are defined by certain income or net worth thresholds and can participate in specific investment opportunities that may not be available to the general public. Market makers are firms or individuals that provide liquidity to the markets by buying and selling securities to facilitate trading activities. Institutional investors, as mentioned earlier, are organizations that invest large sums of money on behalf of their clients or stakeholders. Thus, the label "retail investor" accurately describes an individual who engages in buying securities for their own personal use.