Introduction to Stock Trader Types
AAA
  1. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  2. Decision-Making Methods: Informed, Uninformed, Intuitive
  3. Informed Traders: Fundamental Traders, Technical Traders
  4. Swing Traders
  5. Buy and Hold Traders
  6. Value Traders
  7. Trend Traders
  8. KISS Traders
  9. Momentum Traders
  10. Range-bound Traders - Break-out Traders - Channel Traders
  11. Options Traders
  12. Options Seller Traders
  13. Day Traders
  14. Pattern Day Traders
  15. Intra-Day Traders
  16. Intra-Day Scalp Traders
  17. Introduction to Stock Trader Types
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion

Stock Traders’ vs. Stock Investors' Roles in the Marketplace

Many people use the words "trading" and "investing" interchangeably when, in reality, they are two very different activities. While traders and investors participate in the same marketplace, they perform two very different tasks using very different strategies. Both of these parties are necessary, however, for the market to function smoothly.

Stock traders: Individuals or entities engaging in the trading of equity securities, or the transfer of financial assets in any financial market, either for themselves, or on behalf of someone else. They operate in the capacity of agent, hedger, arbitrageur, speculator or investor.   

Stock investors: Individuals or entities who use their own money to purchase equity securities, which offer potential profitable returns in the form of interest, income or appreciation in value (capital gains).

There is quite a variation of characteristics. To go into further detail on investors and traders:

Stock investors

Stock investors are the market participants whom the general public most often associates with the stock market. 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 buy stock ownership in a corporation and hold onto those stocks for the very long term, generally measured in years.

These investors, who purchase shares of a company for the long term with the belief that the company has strong future prospects, typically concern themselves with two things:

  • Value - Investors must consider whether a company's shares represent a good value. For example, if two similar companies are trading at different earnings multiples, the lower one might be the better value because it suggests that the investor will need to pay less for $1 of earnings when investing in Company A, relative to what would be needed to gain exposure to $1 of earnings in Company B.
  • Success - Investors must measure the company's future success by looking at its financial strength and evaluating its future cash flows.

Both of these factors can be determined through the analysis of the company's financial statements along with a look at industry trends. At a basic level, investors can measure the current value of a company relative to its future growth possibilities by looking at metrics such as the PEG ratio - that is, their price earnings (value) to growth (success) ratio.

Stock traders

Stock traders are market participants, either an individual or firm, who purchase shares in a company with a focus on the market itself rather than the company's fundamentals. A stock trader usually tries to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. The stock trader is usually a professional. Persons can call themselves full- or part-time stock traders/investors while maintaining other professions.

Markets involved in the trade of commodities are beneficial to a stock trader’s strategy. After all, very few people purchase wheat because of its fundamental quality - they do so to take advantage of small price movements that occur as a result of supply and demand. Stock traders typically concern themselves with:

  • Price patterns - Stock traders will look at past price history in an attempt to predict future price movements. This is known as technical analysis.
  • Supply and demand - Traders keep close watch on their trades intra-day to see where money is moving and why.
  • Market emotion - Traders play on the fears of investors through techniques like fading, where they will bet against the crowd after a large move takes place.
  • Trader support - Market makers (one of the largest types of traders) are actually hired to provide liquidity through rapid trading.

Ultimately, it is traders who provide the liquidity for investors and always take the other end of their trades. Whether it is through market making or fading, traders are a necessary part of the marketplace.

Clearly, both traders and investors are necessary in order for a market to function properly. Without traders, investors would have no liquidity through which to buy and sell shares. Without investors, traders would have no basis from which to buy and sell. Combined, the two groups form the financial markets as we know them today.

Decision-Making Methods: Informed, Uninformed, Intuitive

  1. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  2. Decision-Making Methods: Informed, Uninformed, Intuitive
  3. Informed Traders: Fundamental Traders, Technical Traders
  4. Swing Traders
  5. Buy and Hold Traders
  6. Value Traders
  7. Trend Traders
  8. KISS Traders
  9. Momentum Traders
  10. Range-bound Traders - Break-out Traders - Channel Traders
  11. Options Traders
  12. Options Seller Traders
  13. Day Traders
  14. Pattern Day Traders
  15. Intra-Day Traders
  16. Intra-Day Scalp Traders
  17. Introduction to Stock Trader Types
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion
RELATED TERMS
  1. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  2. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  5. Dividend

    A distribution of a portion of a company's earnings, decided ...
  6. Einhorn Effect

    The sharp drop in a publicly traded company’s share price that ...
  1. Why is the EBITDA margin considered to be a good indicator of a company's financial ...

    Understand why the EBITDA margin is a good indicator of a company's financial health. Learn why it also has some drawbacks ...
  2. How attractive is the internet sector for a growth investor?

    Learn why the Internet sector is an attractive option for growth investors, as well as what many of them do to reduce the ...
  3. What are some examples of different types of capital?

    Learn about the different types of capital, including financial, human and social capital, and how each is a valuable asset ...
  4. Where can I find out about upcoming stock splits?

    Learn what a stock split is, how it is accounted for and where to find upcoming information about stock splits on the Internet.

You May Also Like

Related Tutorials
  1. Investing Basics

    Industry Handbook

  2. Fundamental Analysis

    Discounted Cash Flow Analysis

  3. Fundamental Analysis

    Ratio Analysis Tutorial

  4. Options & Futures

    Binary Options Tutorial

  5. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

Trading Center