Stock trader
A
Stock Trader or a
Stock Investor is a
financial markets professional or firm, who buys and sells
financial instruments, such as
stocks and
bonds. The individuals or firms trading in a principal capacity sometimes call themselves stock traders or simply
traders. Many people across the world can call themselves stock traders or part-time stock traders, despite of having another profession in parallel with their regular trading activities in the financial markets. When a stock trader has clients, and acts as a money manager or adviser with the intention of adding value to his clients finances, he is also called a
financial adviser 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 and
fund management. A very active stock trader who holds positions for a very short time and makes several trades each day is a
day trader. Other broad or specific designations for different kinds of stock traders include the terms:
speculator,
hedger,
arbitrageur and
market maker.
Stock traders usually need a
stock broker, such as a
bank or a brokerage firm, as intermediate. Since the spread of the
Internet banking, it is usual to use an
Internet connection to manage their own financial
portfolios, including ordering the sell/buying orders, set stop losses prices and define buying/selling prices. Using the
Internet, specialized software and a
personal computer, stock traders make use of
technical analysis and
fundamental analysis to help them in the decision process. A stock trader utilize also several advising and information resources based on the Internet and the
media, such as financial/business news and data firms (
Reuters,
Bloomberg,
Financial Times,
Yahoo! Finance,
MSN Money,
AFX News,
Newratings,
Forbes,
BusinessWeek,
Hoover's). They exclusively trade on their own behalf, as a principal, investing money on a share or other
financial instrument, which they believe will increase in price aiming to sell it later with earnings. According to the trading techniques and strategy adopted, or the investing profile of each stock trader, its trading style can be called
value investing,
growth investing,
day trading,
swing trading, or
trend trading.
Trading activities are not free. First of all, they have a considerably high level of
risk,
uncertainty and
complexity, especially for unwise and inexperienced stock investors seeking for an easy way to make
money quickly. For the other side, stock traders 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 State over the transactions and earnings. 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.
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. The wealth of investors such as
Warren Buffet and others could be equally attributed to chance as well as to stock picking prowess. In a
normal distribution of investors, many academics believe that the richest are simply
outliers in such a distribution (e.g. in a game of chance, they have flipped heads twenty years in a row).
For this reason most academics and economists recommend that investors invest in funds that follow an index in the market, i.e. long-term and well-diversified investments.
Dart Board Method
Financial journals and newspapers such as the
Wall Street Journal have done articles on stock picking in the past. One famous article involved a stock picking contest between a panel of Wall Street experts, the public and a
dart board. One member was elected to throw darts at the Journal's stock page in order to select a portfolio. At the end of the experiment, the public and the dart board both beat the board of Wall Street experts. Was the dart board more savvy? The dart board's triumph over the Wall Street experts can be attributed to chance (one could also attribute the dart board losing to the experts to chance as well).
*
Jimmy Wales, the founder of
Wikipedia, was a professional stock trader before being known for Wikipedia. He was a
futures and
options stock trader in
Chicago.
*
Jules Verne, the famous
writer, was a stock trader at the
Paris Stock Exchange (
La Bourse de Paris).
*
Isaac Newton, the famous
physicist lost some of his money in the stock exchange due to speculation (estimated amount lost by Isaac Newton in South Sea stock speculation in the
1720s: $2,000,000).
*
John Maynard Keynes, the famous
economist, was a very successful stock investor.
*
David Ricardo, the famous
political economist joined his father at the
London Stock Exchange, where he began to learn about the workings of finance. This beginning set the stage for Ricardo's later success in the
stock market.
*
Alexander Elder*
Philip Fisher*
Jesse Lauriston Livermore*
Peter Lynch*
George Soros*
John Templeton*
Monroe Trout*
Martin Zweig*
Value investing*
Day trader*
Day trading*
Fundamental analysis*
Shareholder*
Stock*
Stock exchange*
Stock market*
Technical analysis*
Technical Analysis Software (Finance)*
Trader (finance)
