What Is a Trader and What Do Traders Do?

What Is a Trader?

Traders are individuals who buy and sell financial assets in financial markets for themselves or for others. They differ from investors in that they usually hold assets for shorter periods of time, seeking to profit from short-term trends, while investors tend to have a longer-term perspective.

A trader may engage in buying and selling activities in any financial market, including stocks, bonds, currencies, commodities, and derivatives.

Understanding Traders

A trader can either work for a financial institution, where they trade using the company's money and credit, and receive a salary and bonus, or they can work independently, using their own money and credit, and retaining all profits.

Short-term trading, which traders often employ to pursue profits, can be disadvantageous due to commission costs and the bid/offer spread. However, the rise of competitive discount brokerages and electronic trading platforms has reduced these costs, particularly in the foreign exchange market. Additionally, short-term capital gains in the United States are taxed differently than long-term capital gains.

There are several types of traders who use different strategies:

• Scalping or micro-trading: These traders make numerous (from dozens to hundreds) trades daily, attempting to make a small profit from each trade.
• Momentum trading: These 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: These traders concentrate on graphs and charts. They use different technical indicators and analyze charts, looking for buy or sell signals.
• Fundamental trading: These traders focus on fundamental analysis and examine corporate events, such as earnings reports and acquisitions, which may affect a stock's price.
• Swing trading: These 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.

Trader Operations: Institution vs. Own Account

Financial institutions often have trading rooms where traders buy and sell a variety of products on behalf of the company. These traders are given limits on the size of their positions, the maximum maturity of their positions, and the amount of mark-to-market losses they can incur before they are required to close out their positions.

The company assumes the underlying risk and retains most of the profits, while the traders receive salaries and bonuses. In contrast, traders who work independently typically operate from home or small offices and use discount brokers and electronic trading platforms. Their limits are based on their own cash and credit, and they retain all profits.

A trader can work for a financial institution, where they trade with the company's money in exchange for a salary and bonus. Alternatively, a trader can also trade on their own, using their own money and keeping all profits.

Commission costs are one of the main disadvantages of short-term trading, but some brokerages offer zero commission and tight market spreads to mitigate this.

Trading is available to not just professionals with financial education, but also ordinary individuals who see it as a source of income and intellectual challenge. However, financial literacy is still essential for a trader's success. Many trading platforms also offer demo modes, where traders can practice their skills before trading with real money.

Financial traders are sometimes criticized and labeled as "vultures" because their success depends on market volatility and the occasional failure. However, others defend the practice, arguing that it is a fundamental part of a capitalist economy.

Brokers: An Important Resource for Traders

Brokerage firms offer lower commissions per trade, but do not provide financial advice. Since individuals are not able to trade directly on a stock or commodity exchange on their own, using a discount broker is an affordable way to access the markets.

Many discount brokers also offer margin accounts, which allow traders to borrow money from the broker to purchase stock, allowing for larger positions but also increasing potential losses. Foreign exchange trading platforms connect buyers and sellers of currencies in the spot, forward, and options markets, providing more price information to individual traders and narrowing price spreads and reducing commissions.

Traders at MA Profit

At MA Profit, traders use artificial intelligence (AI) and sophisticated trading algorithms to analyze large amounts of data and make smart trading decisions in real time.

The MA Profit AMC, an actively managed certificate, is actively managed by a team of experts who adapt to changing market conditions and optimize their strategies for maximum returns.

We offer MA Profit AMC to a range of investors, including individual retail investors and large institutional clients.