Trader: What It Is and How to Get Started in This World from Zero

What Is a Trader? Definition and Role in the Markets

When we talk about what a trader is, we refer to an active participant in the financial markets who executes buy and sell operations of various instruments: currencies, cryptocurrencies, stocks, bonds, derivatives, and funds. Unlike the traditional investor, the trader operates with a short-term horizon and a speculative focus, seeking to capitalize on price fluctuations through quick decisions based on data analysis.

A professional trader can serve as an order executor, hedge manager, arbitrator, or speculator. It is essential to understand that there are substantial differences between the professional trader (who operates within financial institutions), the independent trader (who acts with personal resources), the long-term investor, and the intermediary broker.

An effective trader requires significant risk tolerance, a deep understanding of market psychology, and the ability to make decisions under pressure. Although formal academic training is not mandatory, practical experience and mastery of analytical tools are decisive for success.

The Distinction Between Traders, Investors, and Brokers

Although these three roles operate in the financial markets, their objectives and methodologies diverge considerably.

The active trader uses their own resources with a short-term focus. They require constant market monitoring and make quick decisions based on technical analysis or market events. Their risk tolerance is high due to the inherent volatility of their operations.

The investor acquires assets with the intention of holding them long-term. They perform thorough analysis of companies’ financial health and macroeconomic conditions. Although their activity involves risk, longer exposure time mitigates volatility compared to trading.

The broker acts as a professional intermediary who buys and sells on behalf of clients. They require university education, regulatory licensing, and deep knowledge of financial regulations. They represent the professional option for those who prefer to delegate management.

Current Statistics: The Reality of Professional Trading

Before starting, it is crucial to understand that professional trading faces significant challenges. Recent research reveals that only the 13% of day traders achieve consistent profitability over six consecutive months. In the long term, only about the 1% generate sustained gains over five years or more.

Persistence is also critical: approximately 40% of day traders quit in the first month, and only 13% continue after three years. These figures highlight the importance of solid preparation before committing capital.

At the same time, the market is undergoing radical transformation. Algorithmic trading accounts for 60-75% of total volume in developed markets, automating operations through sophisticated algorithms. This trend improves efficiency but increases volatility and poses challenges for individual traders without access to cutting-edge technology.

Essential Steps to Start as a Trader

Acquiring Financial Knowledge

The fundamental basis requires mastering concepts of economics, markets, and how news and events affect prices. It is recommended to deepen professional literature, follow specialized analysis, and stay updated on technological advances influencing fluctuations.

Understanding Market Dynamics

It is essential to understand what drives price movements, how collective psychology generates trends, and which economic factors (interest rates, inflation, employment reports) generate volatility in specific assets.

Defining Strategy and Asset Selection

Based on your risk profile, available time, and knowledge, you should define which assets to trade and through which strategy. This decision must align with your realistic return objectives.

Opening an Account on a Regulated Platform

To operate, you need access to a regulated broker platform that offers analysis tools, quick execution, and risk protections. Many platforms offer demo accounts with virtual capital to practice without initial risk.

Mastering Technical and Fundamental Analysis

Technical analysis examines charts and historical price patterns. Fundamental analysis evaluates companies’ financial health and macroeconomic conditions. Both approaches are complementary for making informed decisions.

Rigorous Risk Management

Never invest more than you can afford to lose. Implement stop loss (stop loss) and take profit (take profit) limits in each operation. Risk management is a key differentiator between traders who persist and those who exit.

Types of Financial Assets to Trade

Stocks: Ownership participation in companies. Prices fluctuate based on corporate performance and overall market conditions.

Bonds: Debt instruments issued by governments and corporations. When purchased, you lend money in exchange for interest returns.

Commodities: Essential goods like gold, oil, natural gas. Highly liquid and sensitive to geopolitical factors.

Forex (Currency Market): The largest and most liquid market globally. Traders buy/sell currency pairs, exploiting exchange rate fluctuations.

Stock Indices: Represent the overall performance of groups of stocks. Track the performance of sectors or entire markets.

Contracts for Difference (CFDs): Allow speculation on price movements of assets without owning them. Offer leverage, long/short positions, and operational flexibility.

Classification of Trading Styles

Day Traders

Execute multiple transactions during a session, closing all positions before the market closes. Seek quick profits in stocks, Forex, and CFDs. Require constant attention but generate high commissions based on volume.

Scalpers

Perform frequent trades aiming for small but consistent gains. Benefit from liquidity and volatility. CFDs and Forex are ideal for this approach, but meticulous risk management is required as small errors can be amplified.

Momentum Traders

Capture gains by trading assets with strong directional movements. CFDs, stocks, and Forex are suitable instruments. The challenge lies in accurately identifying trends and timing entries/exits.

Swing Traders

Hold positions for days or weeks, taking advantage of price oscillations. CFDs, stocks, and commodities are appropriate vehicles. Require less time than day trading but expose to risks of changes during nights and weekends.

Technical and Fundamental Traders

Base decisions on chart analysis and/or economic fundamentals evaluation. They can trade any asset. Provide deep insights but require advanced knowledge and precise interpretation.

Essential Risk Management Tools

Stop Loss: Automatic order that closes a position when reaching the maximum tolerable loss price.

Take Profit: Order that secures gains by closing the position at the target price.

Trailing Stop: Dynamic stop loss that automatically adjusts favorably with market movements.

Margin Call: Alert when account margin falls below a threshold, forcing position closure or fund injection.

Diversification: Distribute capital among multiple uncorrelated assets to mitigate the impact of poor individual performance.

Practical Case: Momentum Trading in the S&P 500

Imagine a momentum operation in the S&P 500 via CFDs. The Federal Reserve announces an interest rate hike. Historically, this pressures stock indices, limiting corporate borrowing capacity.

As a momentum trader, you observe a quick market reaction: the S&P 500 begins a downward trend. Anticipating the persistence of this decline in the short term, you open a short position (sell) in index CFDs.

For risk management: set a stop loss above the current price (limiting losses if the market rebounds) and a take profit below (ensuring gains if the decline continues).

Operational example: Sell 10 S&P 500 contracts at 4,000. Stop loss at 4,100 (maximum tolerated loss). Take profit at 3,800 (target gain).

If the index drops to 3,800, the position closes automatically, consolidating gains. If it rebounds to 4,100, the close limits losses. This structure protects capital while allowing capturing directional movements.

Final Reflections: Trading as a Complement, Not a Substitute

Trading offers the potential for significant returns and flexible hours. However, it is a high-risk activity where average profitability is highly variable, depending on the trader’s skill, experience, and strategy.

Statistical realities show that most day traders do not achieve sustainability: most abandon within the first three years. The growing algorithmic trading also increases the complexity of the environment.

Fundamental recommendation: Do not invest more than you can afford to lose. Consider trading as a supplementary income source, not as a substitute for job stability. Maintaining a primary job or solid income is critical to protect financial security while developing trading skills.

Frequently Asked Questions

How do I start trading operations?

Educate yourself about financial markets and trading types. Choose a regulated broker, open an account, and develop a strategy aligned with your risk profile.

What is a trading broker and how to choose one?

A broker is a company that provides access to financial markets. When choosing, consider commissions, platform quality, customer service, and current regulation.

Can I trade part-time?

Yes. Many traders start trading in their free time while maintaining their main job. It still requires dedication and systematic study to develop necessary skills.