Who is a trader and what he does: role, functions and main aspects of activity

Many people who are interested in finance and investments imagine a trader as a person sitting in a comfortable chair in front of several monitors with charts of quotes, dressed in an expensive suit and accessories. This image creates the illusion that the profession of a trader brings easy money if you know some important secret.

However, if you came to Forex or stock exchanges for quick money and easy enrichment, you will be disappointed. Trading is a complex profession that requires knowledge, constant training, discipline, attention, focus, a lot of time in front of a monitor and initial investments.

Let’s take a closer look at who a trader is, what he does and how he earns.

What is trading

In simple words, trading is the process of trading currency pairs, shares, securities and other exchange assets in order to increase the initial investment. Transactions on financial markets can be made by both official participants with large investment opportunities and private traders who need an intermediary — a broker.

Both follow two basic rules:

• Buy an asset at a lower price to then sell it more expensively.
• Contract to sell at the current high price in order to later buy back or deliver the asset at a lower value.

In the first case, the market participant counts on the growth of the asset price, in the second case — on its fall. The difference in value is their profit.

Who is a trader

A financial trader is a participant in the trading process on the exchange or over-the-counter market, influencing the prices of assets and ensuring their liquidity. There are several types of traders:

• Speculator: Often makes trades, is ready for high risks of losses, trades on short timeframes.
• Investor: Uses long-term strategies like «buy and hold», may invest in speculators for asset management.
• Hedger: Protects its assets from price fluctuations, for example, by using futures for agricultural products.
• Arbitrageur: Seeks risk-free profit in the price difference of one asset at different brokers or on different exchanges.

Traders can be either professionals or amateurs, private or institutional traders. Professionals are usually licensed and can make trades directly on the exchange, providing services to clients. Private traders need intermediaries such as brokers, such as FxPro, which has licenses and years of experience.

Principles of trading of a financial trader

There are a few basic principles a trader must follow in order to succeed:

• Buy cheap — sell expensive: This is a basic rule for all participants in financial markets.
• Follow the strategy: Every trader should have a pre-designed strategy, including the conditions for closing a position, the volume of the trade and the degree of risk.
• Constant learning: A trader must keep up to date with the latest market changes and learn new strategies.
• Don’t invest what you can’t afford to lose: Trading involves a high risk of loss, so you can’t use borrowed funds or money needed in the near future.

Methods of market analysis

It is important for a trader to have a trading strategy based on one of the two basic principles of analysis:

• Fundamental analysis: Includes evaluation of economic events, statistics, political and geopolitical news, central bank decisions, etc.
• Technical Analysis: Based on the study of asset charts and indicator readings. It is important to be able to identify support and resistance levels and build trend lines.

Many traders combine these methods to achieve the best results.

How to become a trader

Anyone can become a trader by showing diligence, interest and patience. It is important to be prepared for initial training and possible losses. To become a trader, follow the steps below:

• Get some initial training: This can be courses or free training materials.
• Develop a trading strategy.
• Test the strategy on a demo account: Trade on a demo account to understand the conditions for opening and closing positions.
• Choose a suitable broker and open a trading account.

The time required for education and training can vary from six months to several years. It is important to take your time and carefully consider each transaction to avoid losses and achieve success.