Explaining The Life Of A Trader

July 16, 2018 15:31

Dear traders,

Frequently traders are asked simple, straightforward questions, such as, What is your job? What do you do for a living?

From the trader's perspective, explaining what trading is, and what traders do for a living is tricky. Many people don't know what Forex trading is. For some this might be hard to fathom, and they might find themselves thinking 'how can one not understand trading, it's so simple?'. For others, it might actually be a little more complex, and attempting to simplify things and go with the most basic explanation simply won't do.

How does one become a trader? What is the analyst actually doing? What do traders teach in seminars? What is the job like on a daily basis? These kinds of questions might be a little difficult to explain to someone with little to no knowledge about global economies o, and therefore, trying to explain trading on the markets is tough, considering all of the things you need to be educated on, and that which you need keep updated on also.

A Trader's Job Explained

  • Retail Trader

Assuming that you trade Forex and Equities for yourself with the account that is less than 100.000 units (EUR, USD..etc) you are considered a retail trader. A retail trader speculates on different markets, and trades with his or her personal account or an account that was given to him or her by another retail trader to manage.

  • Proprietary Trader

A prop trader (the proprietary trader) is a trader who trades different instruments (for instance, Forex, Stocks, Bonds, Commodities, Equities etc) with the investment firm's own money as opposed to a depositors' money. The trader also has the complete freedom to speculate with the investment firm's funds on all markets, but unlike market makers this type of trader cannot move the market during a period of low volatility.

The amount of money that a prop trader manages is huge, usually above 5.000.000 units.

The prop trader typically trades with a team, but does not have to share profits with a group. This trader has a highly coveted position, but stands out in terms of their age in the trading room, since prop traders are among the most experienced. They have usually put in many years in the trading room before assuming this role.

  • Institutional Trader

An institutional trader usually manages relatively large amounts of capital. Institutional traders buy and sell on different markets, securities and derivatives for accounts they manage for a group or an institution. Bear in mind that the term "institutional trader" refers to the entities mentioned above, and that there are individual trader teams who trade for an institution. So as you can see, the term "trader" can be interpreted differently depending on the job performed.

The Job of a Forex Analyst

The job of the analyst is to provide the analysis to disparate parties. Some of them are institutional level trading desks, funds, and big investors. The analysts also offer analyses through brokers, and other platforms, into the retail market.

There are different types of analysts too, namely 'Pre-Fact' and 'Post-Fact'. Pre-fact analysts are arguably rare, as their job is not just to predict the price movement, but also to provide possible levels where the price should turn (possible entries) with targets.

Perhaps the best way to predict the price movement is to belong to the first category of traders. Pre Fact analysts spend the day in front of the screens, watching the price action, coming up with trading ideas, letting people know what's going on in the market and where they could enter into more profitable positions.

The analysis produced should be very clear and concise. Each individual obviously is going to have their own unique opinion, but is perhaps a good idea to stick to one's initial judgement, and not be deterred by other opinions.

There are two recogniseable types of analysts:

  1. Technical analysts: who observe price action movements based on chart patterns, candlesticks, and historical vs now moment movements.
  2. Fundamental analysts: who analyse different micro and macroeconomic, institutional reports on whether the big players are at work, and where the orders are sitting.

A Trader's Battlefield

Analysing the markets is not the same as trading. Think of it as a battlefield. The analysis is the "preparation" process, and the trader is scouting the battlefield. Trading is the "into the fire" process. Traders are thrown into the first line, and need to survive.

Determining the amount of money traders need to start with to go down the path of trading for a living is a bit of a complicated process without any shortcuts.

The biggest and potentially most deadly mistake that traders can make when they decide to go full-time is being undercapitalised.That is their shortcut to doom and a "patient zero" of mistakes, from which all other errors may be spawned. It always depends on the quality of life you choose to live and a "Plan B" if your capital is no more.

The Retail trader's job is to monitor the market, the news and price flows carefully. They know their margin, they have a plan, a risk threshold and a goal. This trader observes the news streams carefully, focusing only on stories of interest to them individually. Following the trends, currency strengths and essential releases, the trader ultimately decides when the right time to pull the trigger is.

The real positive about being a professional trader is the broad access to tools, and various information that an 'average joe trader' is not likely to be able to obtain. Depending on a given day, sometimes it's going to be dull, and nothing is happening, and the trader faces a kind of struggle with which market to trade on. At other times, everything is moving all at once, and the trader is scrambling to try and keep up with, and manage all of their trades correctly.

The feeling when the trader has had a good trading day might be amazing, joyful, or even euphoric. Success in trading does not always lie in the capital gained, but rather, the success of the trades, and the feelings that come with it.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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