What is a Stock Trader?
A stock trader can take the form of an individual investor or a firm who participates in the buying and selling of stocks, bonds, or financial instruments as part of the global financial markets.
Individuals or business entities that trade stocks or bonds within the stock market do so in hopes of accruing a profit from short-term price volatility or fluctuations in the positions held or transacted. A stock trader may hold their positions for several weeks or several seconds, depending on their strategy, their forecasts for the underlying position, and the overall volatility of the stock market.
The majority of stock traders are considered financial professionals; however, anyone with liquid capital can partake in stock trading. Those stock traders, who have clients, act as money managers or advisers; businesses or individuals will offer funds for the exchange of a professional’s stock tips and the incorporation of their strategy to earn a profit. In these instances, the financial manager can take the form of an independent professional or a massive bank corporation.
The latter may include financial managers dealing with hedge funds, mutual funds, pension funds, investment funds or other professionals involved with fund management, equity investment, and broader wealth management. In addition to the different forms a professional can represent, there are numerous strategies that can be incorporated into stock trading. Day trading, market making, scalping, momentum trading, trading the news, arbitrage, derivatives trading, hedging, trend following, and trading off fundamentals are all common forms of stock trading techniques.
As stated before, a trader can hold a position for an undetermined amount of time; however, entities or individuals who purchase stocks with the intention of holding them for an extended period of time (several months to years) will primarily rely on fundamental analysis for the investment decisions. This method, assumes that the stock-holder is not playing the fluctuations of the market and is solely intended to profit off the fundamentals and the progress of the underlying stock purchase. This strategy was made popular in the bull markets of the 80s and 90s where buy-and-hold investors withstood the short-term dips in the stock market.
Trading activities possess a considerable level of complexity, risk, and uncertainty. Additionally, the incorporation of a professional stock trader will also require the payment of transaction fees, taxes, and commissions.
Depending on the nature the corresponding state legislation involved, a number of fiscal obligations must be respected for those involved in stock trading. For instance, taxes are levied differently depending on jurisdiction over transactions which involve capital gains and the obtainment of dividends.
In addition to taxation, a stock trader must acknowledge the significant opportunity costs that are incorporated into stock trading. The time needed to access information, the financial risks attached to owning stock, the consumption of electricity needed for researching stock, and the time that goes into developing a strategy must be incorporated into a cost/benefit analysis before one decides to trade stocks.