What is a 'Stock Trader'

A stock trader is an investor in the financial markets. Stock traders can be individuals or professionals trading on behalf of a financial company. Stock traders participate in the financial markets in various ways. Institutional level traders typically have the greatest market influence and are often employed by management investment companies, portfolio managers, pension funds or hedge funds.

BREAKING DOWN 'Stock Trader'

Stock trading can be profitable for individuals and institutions. The two groups participate in the financial markets in different ways. (See also: Introduction to Stock Trader Types.)

Individual Stock Trading

Individuals can be very successful at stock trading. There are a number of stock trading strategies and techniques that are targeted for individuals. Trading platforms include Nadex, E-Trade, Schwab and Merrill Edge.

Trading penny stocks is one market strategy that can be highly profitable for individuals. Stocks with prices of up to $5 can be considered penny stocks. Traders can buy large quantities of penny stocks at low prices, generating significant market gains. Penny stocks usually trade on over-the-counter exchanges with transactions that can be easily facilitated through discount brokerage platforms. (See also: How to Invest in Penny Stocks for Beginners.)

Institutional Stock Trading

Institutional stock traders may have their own capital portfolios for which to earn profits. These traders are typically known for their market intelligence and ability to profit from arbitrage opportunities. This type of proprietary trading was a factor in the 2008 financial crisis, which subsequently led to new Dodd-Frank regulations and specifically the Volcker Rule.

Institutional buyside traders have much less latitude for market trading. Buyside traders are responsible for transactions on behalf of management investment companies and other registered fund investments. These funds have numerous objectives, ranging from standard indexing to long/short and arbitrage-based strategies. Buyside traders have expertise in trading the securities held within the fund for which they seek market transactions.

Numerous traders also work for alternative investment managers, which are often responsible for a significant portion of market arbitrage trading, as well. Alternative managers can include hedge funds and private capital managers. These investment companies are actively trading a wide range of securities and financial instruments on a daily basis.

Market Efficiency

The efficient market hypothesis is a theory that drives portfolio strategies across the market. Efficient market hypothesis states that the activity of market participants leads to efficiently priced securities with limited opportunity for arbitrage. However, market anomalies occur throughout the course of trading, which facilitates the efficient market hypothesis and can also allow for arbitrage when profit opportunities arise.

RELATED TERMS
  1. Arbitrage Trading Program (ATP)

    An arbitrage trading program (ATP) is a computer program that ...
  2. Desk Trader

    A desk trader is a financial trader who is restricted to instituting ...
  3. Market Arbitrage

    Market arbitrage refers to purchasing and selling the same security ...
  4. Commercial Trader

    Commercial trader can refer to any trader who trades on behalf ...
  5. Forex Arbitrage

    Forex arbitrage is the simultaneous purchase and sale of currency ...
  6. Penny Stock

    A Penny Stock is an equity security that trades below $5. Penny ...
Related Articles
  1. Trading

    Day Trading: An Introduction

    This article takes an objective look at day trading, who does it, and how it is done.
  2. Trading

    What is the Difference Between the two?

    The differences between retail and institutional traders lie in the size of the trade, level of sophistication, and the speed of transactions.
  3. Investing

    How Precious Metals Like Gold Can Be Arbitraged

    Arbitrage trading involves a lot of risk and can get challenging. Find out how to benefit from the price differential between the buy and sell price.
  4. Trading

    Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  5. Investing

    Looking to Begin Trading in The Stock Market?

    If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan.
  6. Trading

    Penny Stocks Vs. Forex: Which Is Right for You?

    Learn more about penny stock trading and forex market trading, and why each investment class appeals to different types of investors.
  7. Investing

    How to Invest in Penny Stocks (ADAT, ANAD)

    Is the lure of finding a diamond in the rough too strong to ignore? Then here's a guide to investing in penny stocks.
  8. Trading

    The 10 Worst Mistakes Beginner Traders Make

    Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors, which can result in costly mistakes.
RELATED FAQS
  1. How do I use software to make arbitrage trades?

    Understand the meaning of arbitrage trading, and find out how traders leverage software programs to detect arbitrage trade ... Read Answer >>
  2. Can you buy penny stocks in an IRA?

    Discover more about penny stocks, how they can be bought utilizing an individual retirement account, and the risks penny ... Read Answer >>
  3. What is arbitrage?

    Arbitrage is buying a security in one market and simultaneously selling it in another at a higher price, profiting from the ... Read Answer >>
Trading Center