Stock Trader

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 and How to Pick Winning Penny Stocks.)

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 for the 2008 financial crisis which subsequently led to new regulations from Dodd-Frank 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 as well as private capital managers. These investment companies are also 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.