From Beginner to Professional Trader: Complete Guide on What a Trader Is

Who is a Trader in the Financial Markets?

A trader is any individual or institution actively involved in buying and selling financial instruments. Their main goal is to generate profit through short-term operations, taking advantage of price fluctuations across various markets. Traders operate with their own resources in currencies, cryptocurrencies, bonds, stocks, commodities, and derivatives.

It is essential to differentiate three key figures in the financial ecosystem: the trader, the investor, and the broker. Although they are often confused, each plays a distinct role. The trader executes frequent trades with a short-term horizon. The investor, on the other hand, acquires assets with the intention of holding them long-term, focusing on fundamental analysis of companies. The broker acts as a professional intermediary between clients and markets, requiring academic training and official regulation.

Effective traders share common characteristics: a deep understanding of financial markets, the ability to analyze quickly, and significant risk tolerance. Unlike investors, they can operate with leverage and take short positions to benefit from price declines.

Training Path: Key Steps to Get Started in Trading

Becoming a trader requires a methodological progression. First, it is essential to acquire a solid foundation in economic and financial concepts. This involves studying specialized literature, staying updated on market news, and understanding how macroeconomic events impact prices.

Second, the aspiring trader must master how financial markets work. This includes understanding supply and demand dynamics, the crucial role of market psychology, and the influence of volatility on price movements.

Third, it is necessary to develop a personal strategy aligned with realistic goals, risk tolerance, and available time. This strategy should specify which assets to trade, in which markets to operate, and under what conditions.

Fourth, mastering both technical and fundamental analysis is essential. Technical analysis studies chart patterns and historical indicators. Fundamental analysis examines the financial health of companies and macroeconomic factors that support valuations.

Finally, implementing rigorous risk management systems protects initial capital. This includes setting loss limits per trade, diversifying investments, and never risking more capital than one is willing to lose completely.

Classification of Assets Available for Trading

Traders can operate across multiple asset classes, each with particular characteristics:

Stocks represent ownership shares in companies. Their prices fluctuate based on corporate performance and general macroeconomic conditions.

Bonds are debt securities where the trader lends money to governments or corporations, receiving periodic interest.

Commodities include essential goods like gold, oil, and natural gas, whose supply and demand determine global prices.

(Forex) currencies form the most liquid market in the world. Traders buy and sell currency pairs speculating on fluctuating exchange rates.

Stock indices track the overall performance of groups of stocks, allowing trading on entire sectors or markets.

(CFDs) (Contracts for Difference) are derivative instruments that allow speculation on price movements without owning the underlying asset. They offer flexibility, leverage access, and the possibility to profit in both bullish and bearish markets.

Trading Styles: Choosing the Right Approach

Different traders adopt various methods depending on their available time and risk profile:

Day Traders execute multiple trades during a session, closing all positions before the market closes. They seek quick profits but require constant monitoring and generate high commissions due to high transaction volume.

Scalpers perform dozens of trades daily aiming for small but consistent gains. This strategy leverages market liquidity but demands extreme precision, as small errors can accumulate into significant losses.

Momentum Traders capture profits by operating in assets with strong directional movements. They need to identify trends accurately and choose optimal entry and exit points, which presents considerable challenges.

Swing Traders hold positions for several days or weeks, taking advantage of price oscillations. This approach requires less time than day trading but exposes traders to overnight and weekend changes.

Technical and Fundamental Traders base decisions on chart analysis and indicators or on economic fundamentals, respectively. Both provide deep insights but require advanced knowledge and precise interpretation.

Essential Risk Control Tools

Effective risk management is what distinguishes profitable traders from those who lose capital:

Stop Loss sets a price limit at which a losing position is automatically closed, containing losses.

Take Profit secures gains by closing the position when a predetermined price target is reached.

Trailing Stop dynamically adjusts the stop loss level according to favorable market movements, protecting profits while allowing for potential growth.

Margin Call alerts when available capital falls below a minimum threshold, forcing the trader to close positions or add funds.

Diversification spreads capital across multiple assets, sectors, and strategies to mitigate the impact of losses in any single operation.

Practical Case: Applying Momentum Trading

Consider a trader operating indices via CFDs. When the Federal Reserve announces an interest rate hike, stocks typically react negatively because corporate borrowing becomes more expensive.

A momentum trader notices that the S&P 500 begins a downward trend after the announcement. Anticipating continuation, they open a short position (sale) in index CFDs to profit from the decline. They set a stop loss at 4,100 to limit losses if the market recovers, and a take profit at 3,800 to secure gains if it continues falling.

If they sell 10 contracts at 4,000 and the index drops to 3,800, the trade automatically closes, consolidating profits. If it bounces back to 4,100, the loss is limited. This example illustrates how momentum traders combine news analysis, trend identification, and disciplined risk management.

Statistical Realities of Professional Trading

Profitability in trading yields variable results. According to academic research, only 13% of day traders achieve consistent positive returns over six consecutive months. Only 1% generate profits over five years or more. These figures reflect the difficulty of maintaining discipline and operational precision.

Retention is also low: nearly 40% of novice traders quit in the first month, and only 13% continue after three years. These statistics highlight that trading requires preparation, significant emotional capital, and acceptance of considerable risks.

Meanwhile, automated algorithmic trading currently accounts for 60-75% of transaction volume in developed markets. This technological shift improves efficiency but increases volatility, presenting additional challenges for individual traders without access to cutting-edge technology.

Final Considerations on Trading Activity

Trading offers the potential for significant profitability and attractive flexible hours. However, it should be considered a supplementary activity to a stable primary income source. Personal financial stability should not depend solely on trading results.

Invest only capital you are willing to lose completely. Many professional traders recommend starting with demo accounts to practice strategies without real risk before committing genuine capital.

Continuous learning is fundamental. Markets constantly evolve, new strategies emerge, and global events alter dynamics. A successful trader adapts, studies historical cases, analyzes mistakes, and continuously refines methodologies.

In conclusion, becoming a competent trader requires rigorous education, emotional discipline, meticulous risk management, and acceptance that most face significant difficulties. For those who develop these skills, trading can provide substantial supplementary income.