Trading: Complete Definition, Types of Traders, and the Path to Professionalization

What is Trading and Who Are the Operators?

In financial markets, the concept of trading refers to the buying and selling of financial instruments aiming to generate profit through price fluctuations over relatively short periods. A trader is precisely that individual or institution that carries out these operations, trading assets as diverse as cryptocurrencies, currencies, stocks, bonds, commodities, and derivatives.

Although commonly the term “trader” is associated with anyone operating in the markets, it is essential to differentiate between various categories. Professional operators work within large financial institutions with significant resources and specific regulation. Retail operators act independently with their own funds. This landscape also includes investors who hold long-term positions, and brokers who act as intermediaries facilitating transactions for third parties.

The distinction among these figures is crucial to understanding market dynamics. While a trader seeks quick profits by exploiting volatility, an investor prioritizes long-term growth. Brokers, for their part, need formal academic credentials and must be registered with regulatory authorities to operate legally.

Different Types of Operational Strategies

The diversity of approaches in trading reflects the multiplicity of objectives and personal styles. Each operator must identify which strategy aligns with their risk tolerance and available time.

Day Traders (Day Traders)

These execute multiple transactions within a trading day, closing all positions before the market closes. They seek to capitalize on intraday movements in volatile assets such as stocks, currency pairs, and CFDs. The appeal lies in the possibility of quick gains, though it requires constant attention and generates significant commissions based on volume.

Specialized in Rapid Movements (Scalpers)

They perform dozens or hundreds of trades daily, aiming for small but frequent profits. They leverage liquidity and extreme volatility, especially in Forex and CFDs. This approach requires surgical precision in risk management, as small errors can multiply due to high transaction volume.

Trend Followers (Momentum Traders)

They identify and exploit strong directional movements in specific assets. They mainly operate with CFDs, stocks, and currencies when detecting robust trends. The challenge is to correctly identify the start of trends and determine the perfect timing to enter and exit.

Medium-Term Position Holders (Swing Traders)

They maintain positions for several days or weeks, capturing price oscillations between support and resistance levels. They typically operate with stocks, commodities, and CFDs. This style requires less daily dedication than day trading but exposes capital to risks during overnight and weekend closures.

Data and Trend Analysts

They base their decisions on in-depth analysis of charts, patterns, and economic fundamentals. Technical analysis examines historical price behavior, while fundamental analysis evaluates the financial health of companies or macroeconomic conditions. Both approaches offer valuable insights but require experience and advanced financial knowledge.

Learning Path: From Beginner to Competent Operator

Becoming a professional trader involves an orderly progression of fundamental steps.

Building a Theoretical Foundation

It all begins with rigorous education in economics and finance. Studying specialized literature, following economic news, and understanding how macroeconomic events impact assets are essential. Technology and innovative advances also significantly influence price movements.

Understanding Market Functioning

Beyond theory, it is necessary to understand the practical functioning of specific markets. This includes recognizing factors that generate volatility, the importance of collective sentiment, and how market psychology creates fear and greed cycles that produce predictable movements.

Defining a Personal Strategy

Based on acquired knowledge, each operator must develop a coherent strategy aligned with their risk tolerance, available time, and financial goals. This strategy determines which markets to explore, which assets to trade, and how frequently to operate.

Selecting a Regulated Platform

To trade legitimately, access to an authorized and regulated trading platform is necessary. These platforms offer analytical tools, order execution, and often demo accounts with virtual capital to develop skills without real risk.

Mastering Analytical Tools

Both technical and fundamental analysis are vital. The former interprets charts and price patterns to predict future movements. The latter examines financial statements, economic indicators, and industry prospects to identify undervalued opportunities.

Professional Risk Management

This is the difference between operators who survive and those who go bankrupt. Never invest more than you can afford to lose is a fundamental rule. Setting loss limits through stop-loss orders protects capital from unexpected adverse movements.

Asset Selection: The Range of Possibilities

Operators can trade multiple asset classes, each with unique characteristics.

Stocks: Represent fractional ownership in companies. Their prices fluctuate based on corporate performance and macroeconomic conditions.

Bonds: Debt instruments issued by governments or corporations. The trader lends capital in exchange for predetermined interest returns.

Commodities: Essential goods like oil, gold, and natural gas offer exposure to global supply-demand cycles.

Forex (Forex): The most liquid market in the world, where operators speculate on exchange rate changes between currency pairs.

Stock Indices: Represent the overall performance of groups of stocks, allowing trading on sector or economy-wide movements.

CFDs (CFDs): Derivative instruments that allow speculation on price movements without owning the underlying asset. They offer flexibility, leverage, and the ability to open both long and short positions.

Essential Tools for Protection and Control

Risk management requires specific instruments available on professional platforms.

Stop Loss: An order that automatically closes a position when a maximum tolerable loss price is reached, thus limiting potential losses.

Take Profit: An order that secures gains by closing the position when a predefined profit target is reached.

Trailing Stop (Trailing Stop): A variant that automatically adjusts following favorable movements, protecting gains while allowing growth.

Margin Calls (Margin Call): Alerts that notify when available capital falls below critical thresholds, forcing position closures or additional fund deposits.

Diversification: A fundamental strategy that distributes capital across multiple uncorrelated assets, reducing the impact of poor performance in any individual position.

Case Study: Practical Operation in Action

Let’s consider a momentum trader observing the S&P 500 index via CFDs. The Federal Reserve announces an interest rate hike, generally interpreted as a bearish pressure on stocks due to higher corporate financing costs.

The operator notices that the market reacts immediately and the S&P 500 begins a downward trend. Anticipating that this pressure will continue in the short term, they open a short position (sell) in CFDs of the index to benefit from the downward direction.

To manage risks, they set a stop loss above the current price (for example, at 4,100 points) to limit losses if the market unexpectedly recovers. Simultaneously, they set a take profit below the current price (at 3,800 points) to secure gains if the downward trend continues as expected.

If the index drops to 3,800, the position closes automatically with profits. If it rises to 4,100, it closes with limited losses. This framework structures risk in a controlled manner, allowing participation in opportunities without excessive exposure.

The Realities of Professional Trading: Data and Statistics

Trading offers the potential for significant profitability and unmatched flexibility. However, it is crucial to understand that actual results are highly variable and depend on skill, experience, and consistent application of strategies.

The statistical reality is sober: only about 13% of day traders achieve consistent profitability over six consecutive months. Only 1% generate sustained gains over five years or more. Approximately 40% quit in the first month, and only 13% persist after three years.

At the same time, the market is evolving toward automated algorithmic trading, which currently accounts for between 60% and 75% of total volume in developed markets. This trend improves efficiency but increases volatility and creates challenges for individual operators without access to cutting-edge technology.

It is critical to understand that despite the lucrative potential, trading involves substantial risks. Never invest capital you are not willing to lose entirely. Many experienced traders recommend treating it as a supplementary activity while maintaining a primary job or secure income source to ensure personal financial stability.

Frequently Asked Questions

Where should I start if I am a beginner?

The first step is to educate yourself thoroughly about how financial markets work and different types of trading. Then, select a regulated platform, open an account, and develop a personal strategy aligned with your goals and risk tolerance.

How to choose a reliable trading platform?

When choosing a platform, consider commissions, quality of analytical tools, execution speed, customer service, and fundamentally, verify that it is properly regulated by competent financial authorities.

Is it feasible to trade part-time while maintaining employment?

Yes, many traders start this way. Part-time trading requires dedication to study and operational discipline but allows gaining experience without putting pressure on primary income.