It is not difficult to distinguish bulls from bears and sharks from hamsters. But it will hardly help to maintain a conversation in the company of hardened traders. Such applied zoology is only a part of the complex diversity of the stock exchange population.
This material is devoted to another variant of classifying traders, related to their approach to trading rather than to the direction of trades and professionalism. We will consider the types of traders and their peculiarities, as well as tell you about their natural habitat. Just like in trading, where understanding the different styles and strategies is crucial for success, the world of online gaming also requires knowledge of various opportunities. For instance, using something like Slotozen promo codes can be a strategic move to maximize returns in online casinos, paralleling strategic trading techniques.
Who are traders?
Traders are those who trade any asset: grain or oil, securities or currencies. The main thing is profit. We’re going to talk about traders who trade on stock and cryptocurrency exchanges.
Thanks to popular culture, the average person’s idea of a trader’s job is to shout into a phone receiver, wave papers around and snort cocaine in the most unexpected places. This is an outdated and distorted view: phones and papers have long been replaced by online interfaces. And seriously, professional trading is hard and nerve-wracking work that rewards the judicious and sober.
Habitat – the stock exchange
Most often traders can be found on stock exchanges. To be quite precise, an exchange is an organisation that ensures the operation of the market of goods, currencies, securities or cryptocurrencies. But in everyday life, an exchange is a trading floor where traders negotiate deals. In films, it is shown as a place where people shout loudly into telephone handsets and wave papers around. This space is called a trading room, but with the rise of the internet, such rooms are a thing of the past.
A lot of money passes through the stock exchanges. For 2018, the total value of shares bought and sold was $68.2 trillion. That’s 3 times the expected US GDP for 2019, and 378 times the market capitalisation of bitcoin. But it’s not just stocks that are traded on exchanges.
Exchanges are divided into types depending on the assets traded on them.
- A stock exchange is a platform where securities like stocks and bonds are traded. When a company makes an initial public offering of shares, these shares are listed on the stock exchange. The largest stock exchanges in the world are NYSE Euronext and NASDAQ.
- Currency exchange is a market of national currencies. Here, the laws of supply and demand determine the exchange rates of the world’s currencies against each other. The currency market is called Forex (from the English Foreign exchange).
- Commodity exchange is a platform for trading in commodities. Commodities such as oil, metals or grain are traded on such markets. On commodity exchanges, you can trade derivatives – contracts to deliver raw materials at a predetermined price at a certain time.
With the advent of bitcoin, a new type of financial instruments has emerged in the world – cryptocurrencies. To trade these instruments, a new type of exchanges emerged – cryptocurrency exchanges. Trading on cryptocurrency exchanges is subject to the same laws of supply and demand as on traditional exchanges, but the specificity of cryptocurrencies has led to differences between these trading platforms.
Only accredited investors and brokers are allowed to trade on traditional exchanges. For people without large sums in their bank accounts, access to such platforms is limited, they can only trade through an intermediary – a broker. Cryptocurrency exchanges are accessible to everyone, except that some of them will have to undergo KYC. The regulations restricting access to such venues only concern geography and apply only to certain countries. In addition, many cryptocurrency exchanges are going the way of decentralisation. Such platforms use gates to store and process third-party cryptocurrencies, while smart contracts are used to process trades and transactions within the system.
Diversity of traders
Traders come in many different types. So different, in fact, that they don’t necessarily have to be human. In a broader sense, a trader can be an institution like a pension fund or even a robot, but this is not without human involvement.
Intraday traders
Intraday traders are a generalised type of traders who are united by the principle of conducting all transactions within one trading day. Intraday traders usually open several positions at once in order to gain more profit and compensate for possible losses. Even unprofitable positions will have to be closed at the end of the day, and a couple of successful trades will make it possible to cover losses and come out with profit.
It is very difficult to predict price fluctuations within a trading day. An intraday trader cannot leave the monitor with charts and fresh news for a long time in order not to miss an important movement. Everything is complicated by the fact that traditional stock exchanges operate in different time zones, so according to the local time of the trader, the trading day can start in the late evening and end in the early morning.
Scalpers
Scalpers are a subspecies of intraday traders who trade in very short time frames, from seconds to minutes. The scalper’s approach is to take a small profit quickly and repeat the procedure many times in one trading session.
One significant limitation of scalping is the trading floor commissions. Scalpers benefit from multiple trades with small profits, which means that the commission for each trade will quickly accumulate and can significantly affect the profitability of the trading day.
Position traders
Position traders trade on a trend in a large time frame and do not get distracted by small short-term price fluctuations. This is very similar to investing. Position traders are interested in a long-term trend that can last for months. It does not matter whether the price rises or falls, you can make money in both cases.
Position traders hold positions for a long time. It is necessary to have patience and a decent deposit to withstand possible price jumps. Besides, it is important for a position trader to have a good understanding of the assets he trades.
One of the basic tasks of a position trader is to identify the long-term trend and when to open a position.
The main tool for this task is fundamental analysis of the macroeconomic indicators of the asset and the industry, but technical analysis is also useful. For example, if the price chart of an asset crosses the moving average line in a 40-week interval, this can be considered a signal to open a position.
Swing traders
Swing traders play on short-term price fluctuations during a long-term trend. When the price of an asset has been rising for several weeks, a swing trader waits for a wave of trades against the uptrend. In a strong uptrend, such trades briefly reduce the price of the asset, but the growth is likely to continue, which means it is a good time to buy cheaper.
If everything went according to plan, the short-term wave of sales ends and is replaced by an uptrend. Now a swing trader can wait until the price grows to the desired level and sell the asset with profit. Most often swing traders hold open positions from several hours to several days, in exceptional cases – a couple of weeks.
A swing trader uses trading methods that allow him to make money on the cyclicality of price movements.
Arbitrage traders
Arbitrage traders play on the difference in the price of an asset in different markets. They have little interest in technical and fundamental analysis, signals and other macroeconomics. Instead, it is important for an arbitrage trader to know the price of an asset in several markets and to understand if it will change over the course of a trade.
The success of arbitrage trades depends on the speed of processing orders, commissions and relative calmness in the market – the absence of sharp price fluctuations.
The arbitrageur’s main enemy is the cost of depositing and withdrawing funds on different platforms. He will have to pay for depositing and withdrawing funds on the exchanges between which the asset moves. Commissions for transactions on both platforms are added to this.
Robotraders
Robotraders use special algorithmic systems to make trades. The owner of the trading robot forms a special programme – a strategy, which the robot will follow in the market. Such automation provides the trader with advantages in the form of a very fast reaction to market movements and the ability to make complex calculations. In addition, the robot does not get distracted from work and does not experience emotions that can prevent a person from sticking to the chosen strategy.
A robot can be programmed for different approaches to trading. Thus, robot traders cannot be generalised into a conventional type of trader like scalpers or position traders.
Robo-trading is sometimes erroneously referred to as algorithmic trading. Algorithmic trading is a way to reduce the cost of executing a large order and its impact on the market. To do this, special algorithms divide large orders into several smaller ones and send them to the market at the right time.
