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Stock trader

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A stock trader or a stock investor is an individual or firm who buys and sells stocks or bonds (and possibly other financial assets) in the financial markets.

Stock trader versus stock investor

Charting is the use of graphical and analytical patterns and data to attempt to predict future prices.

Individuals or firms trading equity (stock) on the stock markets as their principal capacity are called stock traders. Stock traders usually try to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. The stock trader is usually a professional. A person can call themself a full or part-time stock trader/investor while maintaining other professions. When a stock trader/investor has clients, and acts as a money manager or adviser with the intention of adding value to their clients finances, they are also called a financial advisor or manager. In this case, the financial manager could be an independent professional or a large bank corporation employee. This may include managers dealing with investment funds, hedge funds, mutual funds, and pension funds, or other professionals in equity investment, fund management, and wealth management. Several different types of stock trading exist including day trading, swing trading, market making, scalping (trading), momentum trading, trading the news, and arbitrage.

Stock traders in the trading floor of the New York Stock Exchange.

On the other hand, stock investors purchase stocks with the intention of holding for an extended period of time, usually several months to years. They rely primarily on fundamental analysis for their investment decisions and fully recognize stock shares as part-ownership in the company. Many investors believe in the buy and hold strategy, which as the name suggests, implies that investors will hold stocks for the very long term, generally measured in years. This strategy was made popular in the equity bull market of the 1980s and 90s where buy-and-hold investors rode out short-term market declines and continued to hold as the market returned to its previous highs and beyond. However, during the 2001-2003 equity bear market, the buy-and-hold strategy lost some followers as broader market indexes like the NASDAQ saw their values decline by over 60%.

Methodology

Stock traders/investors usually need a stock broker such as a bank or a brokerage firm to access the stock market. Since the advent of Internet banking, an Internet connection is commonly used to manage positions. Using the Internet, specialized software, and a personal computer, stock traders/investors make use of technical analysis and fundamental analysis to help them in the decision-making process. They may use several information resources. Some of these resources are strictly technical. Using the pivot points calculated from a previous day trading, traders are able to predict the buy and sell points of the current day trading session. This pivot points give a cue to traders as to where price will head for the day; signalling the trader where to enter his trade, and where to exit. There are criticism on the validity of these technical indicators used in technical analysis, and many professional stock traders do not use them. Many full-time stock traders and stock investors have a formal education of some sort in fields like economics, mathematics and computer science, which are, in general, particularly relevant for this occupation.

Expenses, costs and risk

Trading activities are not free. They have a considerably high level of risk, uncertainty and complexity, especially for unwise and inexperienced stock traders/investors seeking for an easy way to make money quickly. In addition, stock traders/investors face several costs such as commissions, taxes and fees to be paid for the brokerage and other services, like the buying/selling orders placed at the stock exchange. According to each National or State legislation, a large array of fiscal obligations must be respected, and taxes are charged by the jurisdicton over the transactions, dividends and capital gains. However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the jurisdiction, or that tax free stock market operations are useful to boost economic growth. Beyond these costs, the opportunity costs of money and time, the currency risk, the financial risk, and all the Internet Service Provider, data and news agency services and electricity consumption expenses must be added.

Stock picking

Although many companies offer courses in stock picking, and numerous experts report success through Technical Analysis and Fundamental Analysis, many economists and academics state that because of Efficient market theory it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself. In a normal distribution of investors, many academics believe that the richest are simply outliers in such a distribution (i.e. in a game of chance, they have flipped heads twenty times in a row).

Accumulation/distribution method

Other investors choose a blend of technical, fundamental and environmental factors to influence what they invest in, as well as when they invest. These strategists reject the 'chance' theory of investing, and attribute their higher level of returns to both insight and discipline[1].

Famous stock traders or stock investors

References

  1. ^ 6
  2. ^ The Damn'd South Sea, Harvard Magazine (1999), accessed January 2007
  3. ^ South Sea Bubble, Stock Market Crash! (2006), accessed January 2007
  4. ^ FAMOUS FIRST BUBBLES? The South Sea Bubble, Erasmus School of Economics - Erasmus University Rotterdam (2006), accessed January 2007
  5. ^ The South Sea Bubble, History House Inc. (2006), accessed January 2007

See also

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