A trader is a person who buys and sells financial instruments (such as stocks, currencies or commodities) in a financial market.
Traders may trade for themselves, on behalf of the institution they work for or on behalf of a client, acting as intermediary between the client and a market maker.
Individual traders are usually referred to as ‘retail’ traders while professionals working for a large financial institution or company are known as ‘institutional’ traders.
Traders look for profitable trading opportunities by analyzing financial and economic data, making use of technical analysis, seeking to identify anything that is over- or under-valued, and by drawing on their own knowledge and experience.
They often have to make very quick decisions based on small price fluctuations and select the most appropriate trading strategies.
In order to make a profit, traders will have to take a certain amount of risk. Sensible money management is therefore important to any trader, but especially to beginner traders as they gain experience in the markets.
Traders that specialize in certain styles, asset classes or trading strategies might identify themselves with a more specific term such as day traders or swing traders.
The main difference between traders and investors is that traders will look at the market itself while investors will be more concerned with fundamental analysis.
While traders are likely to focus on price patterns, trends, changes in supply and demand, and even emotional market reactions; investors are more commonly associated with analyzing the financial health of a company and making longer-term investments.
In terms of cross-over, the activity of traders contributes to market liquidity and thereby facilitates the transactions of investors. And likewise, the activities of investors provide a foundation from which traders can then buy and sell. Together they contribute to the proper overall functioning of the financial markets.
If you want to become a trader you have to know that there are a variety of different types of trader which you can become, so spend some time thinking about what role and job description fits your skills and interests most. Most traders will work for a company, buying and selling shares, bonds and assets for investors. Flow traders work for banks, buying and selling for the bank’s clients.
Proprietary traders buy and sell on behalf of the bank itself. Sales traders act as intermediaries between a client and the market, investing their clients’ money. They talk to clients directly, advising them on the market and investment opportunities. You could also work independently as a day trader if you had enough capital.
Trading is a very demanding job that requires a particular skill set, as well as the ability to learn new things quickly and adapt to a constantly changing environment. Before you think about getting the official qualifications and certifications you will need, consider the general skills that a trader must demonstrate.
– Traders will need exceptional analytical skills and an aptitude for working with large amounts of quantitative data;
– Traders will need the ability to communicate well with clients and provide detailed advice on market movements and opportunities;
– You must be able to work well in a team, but take responsibility for yourself.
– Traders must have a keen interest in the workings of the market and be able to learn quickly;
– Traders need very strong personal discipline and motivation.
Spend some time researching and learning about trading, how markets work, and what the daily working life of a trader involves, before you commit to a course of education and training. You will look for mispriced assets or other opportunities. You will work to keep people informed and up-to-date on relevant events and prospects in the markets, liaising closely with clients and colleagues and building strong working relationships.
You will make numerous trades, acting quickly to respond to the shifting financial landscape.
You may seek to gain new clients and present opportunities to them.
You can become an independent day trader, trading with your own or a client’s money. If you are thinking of doing this, ensure that you are not committing money that you cannot afford to lose. It is estimated that around 90% of day traders lose money, so you shouldn’t be thinking of trading as a way to make a quick buck to get out of a job you hate.
This is a job that requires professional training and extensive knowledge.
You will also need sufficient hardware and software to create your own trading desk.
You should be realistic about the profits you want to make, and don’t take it lightly.