Blue Collar Trader

Blue Collar Trader

Investopedia / Theresa Chiechi

What is a Blue Collar Trader?

Blue collar trader is a person who trades as a hobby and has another source of income. Blue collar traders typically do not buy or sell in large volumes and aim for smaller returns. They may not be significantly experienced or knowledgeable as traders, and tend to prefer less risky or complex investments.

Blue collar traders can be contrasted with professional traders who trade in order to generate returns that serve as their primary source of income.

Key Takeaways

  • A blue collar trader is someone who trades as a hobby or sideline to their other, primary source of income. 
  • Blue collar traders may glean insights from their main professions and use these insights to inform their trading decisions.
  • However, blue collar traders should be aware of potential conflicts of interest and even running afoul of insider trading rules.

Understanding Blue Collar Traders

A blue collar trader is a non-professional trader who dabbles in trading with spare money. They earn a living from an income source other than trading. Many websites and other information forums help blue collar traders to invest.

Armed with the right information, blue collar traders can generate a significant secondary source of income. Blue collar traders seek advice from brokers on investment decisions and will pay for fee-based services. However, due to competition in the brokerage industry, commissions and fees have decreased in recent years.

Special Considerations for Blue Collar Trading

Blue collar trading comes with specific advantages and potential pitfalls. 

Specialized Knowledge

Blue collar traders typically earn their primary source of income from a profession, occupation, or business other than trading financial assets. They typically possess specialized knowledge of the industry in which they work. This can be useful when trading stocks or other financial instruments related to their industry.

Take for example a construction worker who also trades on the side. Through their job, they might notice a decline in the quality of tools of a specific brand. The construction worker could decide to short sell the manufacturer's stock, expecting the price to drop once the quality issues become more widely known or manifested via declining sales. 

Risk Management

Because blue collar trading represents a secondary source of income, it can also help workers to manage risk through diversification. Every business or industry has ups and downs. Blue collar traders can mitigate some of the risks of their occupation by investing in uncorrelated industries or asset classes. Or, they can directly hedge against that risk by investing in assets that are negatively correlated to the economic performance of their own industry. 

For example, a construction worker could invest in stocks that are unrelated to the construction industry. At the very least, they may want to avoid becoming heavily invested in construction stocks out of familiarity, as this might magnify the risk of having all of your eggs in one basket, in terms of both trading and a primary source of income.

Conflicts of Interest

Blue collar traders need to avoid conflicts of interest between their main occupation and their trading positions. Many professions have explicit ethical or legal requirements that practitioners avoid, disclose, or divest themselves of assets closely related to the work they do. Owning such assets can create ethical, professional, and legal conflicts of interest for the blue collar trader.

Depending on the circumstances, trading on knowledge gained through a professional setting might constitute insider trading if the information is material, obtained through a breach of fidicuiary duty or relationship of trust, and not available to the public. 

Article Sources
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  1. U.S. Securities and Exchange Commission. "Insider Trading." Accessed Dec. 19, 2020.

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