Who is a trader?
In financial markets, a trader is someone who buys and sells instruments, including shares, bonds, commodities and currencies. The role is similar to that of a broker, but traders are usually acting on their own behalf while brokers are acting for their clients.
Where have you heard about traders?
Traders are the most visible human symbols of the financial markets, particularly those working on the diminishing number of face-to-face trading floors. No news report of market turbulence is complete without pictures of traders either gesticulating wildly or staring at computer screens.
The major difference between traders and investors is the duration for which they hold their assets. Generally, investors are known for holding their investments for a longer period of time, while traders prefer to profit from shorter trends and price fluctuations.
What you need to know about traders
A trader can work for a financial institution, where he trades with the company’s money for a salary and bonus. But, a trader can also trade for themselves, using their own money but also keeping all the profits.
There are several types of traders using different trading strategies, these include:
- Scalping or micro-trading – A scalper makes numerous (from dozens to hundreds) of trades daily, attempting to make a small profit from each trade.
- Momentum trading – Momentum traders focus on stocks that move significantly in one direction with high volume. They tend to catch the momentum and profit from it.
- Technical trading – Technical traders concentrate on graphs and charts. They use different technical indicators and analyse charts, looking for buy or sell signals.
- Fundamental trading – Fundamental traders focus on fundamental analysis and examine corporate events, anticipating earnings reports, mergers and acquisitions, reorganisations, which can affect a stock’s price.
- Swing trading – Swing traders often hold their positions longer than one day, trying to capture a trend. They use technical analysis to search for stocks with short-term price momentum.
Commission costs are one of the main disadvantages of short-term trading. However, a number of brokerages offer zero commission along with tight market spreads, making this less of an issue.
Today, trading is available not only for professionals with financial education, but for ordinary people, who see it both as a source of additional income and an intellectual challenge.
Nonetheless, financial literacy is still essential to a trader’s success. You can better understand the markets with info-rich educational videos, trading tutorials, educational guides and analytical articles available for free on Capital.com. A number of trading platforms, such as Capital.com, also offer demo modes, where you can practice your trading skills before trading with real money.
Financial traders are often criticised and labelled as “vultures” as their success depends on market volatility and the occasional failure. While others defend the practice arguing that it is a fundamental part of a capitalist economy.