Trading and Traders: How This Profession Works in the Financial Markets

What is trading really?

The term “trading” describes the activity of buying and selling financial instruments with the goal of making profits. A trader is an individual or institution that executes these operations, whether in stocks, currencies, cryptocurrencies, bonds, commodities, or contracts for difference (CFDs).

Contrary to what many believe, there is no single way to do trading. Traders can act as speculators seeking short-term movements, as hedgers protecting against risks, or as arbitrageurs exploiting price differences. The key is understanding that each profile has its own risks, knowledge requirements, and volatility tolerance.

Key differences: Traders, investors, and brokers

In the financial ecosystem, these three figures play distinct but complementary roles. A trader operates with their own resources seeking short-term gains. An investor, on the other hand, buys assets to hold them over long periods, focusing on fundamental analysis. A broker acts as an intermediary: buying and selling assets on behalf of clients in exchange for commissions.

The distinction is fundamental. While traders need to react quickly to market changes and tolerate high volatility, investors prioritize stability and in-depth analysis. Brokers require formal academic training and must be regulated by financial authorities.

The path to start trading

Step 1: Build a knowledge base

Before opening any position, it is essential to understand how financial markets work. This means reading specialized literature, following economic news, and understanding how macroeconomic factors influence prices. Volatility is not random; it responds to patterns that can be learned.

Step 2: Master technical and fundamental analysis

Technical analysis examines charts and price patterns to predict future movements. Fundamental analysis studies the economic fundamentals of an asset: company profitability, macroeconomic indicators, monetary policies. A competent trader masters both approaches.

Step 3: Define a clear strategy

Each trader must choose which assets to trade and in what time frame. This should align with their risk tolerance, financial goals, and available time. There is no perfect strategy; there is the one that works for each person.

Step 4: Select a regulated platform

To operate, you need access to markets through an authorized platform. Look for regulated operators that offer demo accounts to practice without real money, and that have robust risk management tools.

Types of assets available for trading

Stocks: Represent ownership of companies. Their prices fluctuate based on corporate performance and market conditions.

Bonds: Debt instruments that offer predictable interest flows.

Forex (Forex): The largest and most liquid market in the world, where currency pairs are traded based on exchange rate fluctuations.

Commodities: Gold, oil, natural gas, and other essential goods.

Stock indices: Indicators of the performance of groups of stocks that track overall market or sector performance.

Contracts for Difference (CFDs): Allow speculation on price movements without owning the underlying asset. They offer leverage, flexibility, and the ability to operate both long and short.

The most common trading styles

Day Trading: Multiple operations within the same day, closing all positions before the session ends. Requires constant attention and generates high commissions due to transaction volume.

Scalping: Performing dozens of trades daily aiming for small but consistent gains. Demands extreme precision and meticulous risk management, as small errors multiply with volume.

Momentum Trading: Capturing gains by leveraging strong trends in one direction. Requires correctly identifying when a trend begins and ends.

Swing Trading: Holding positions for days or weeks to capitalize on price oscillations. Less demanding than day trading but exposes traders to overnight and weekend movements.

Technical and fundamental analysis: Traders who base decisions on in-depth study of charts, economic data, and corporate fundamentals.

Essential tools for risk management

Risk management is what separates successful traders from those who lose money. The main tools include:

Stop Loss: An automatic order that closes a position when a maximum loss price is reached. Protects capital by limiting damage.

Take Profit: Automatically closes a position when the profit target is reached, securing gains.

Trailing Stop: A dynamic stop loss that adjusts as the market moves favorably, protecting profits while allowing gains to grow.

Margin Call: Alert that notifies when account margin falls below permitted limits, forcing position closures.

Diversification: Spreading operations across multiple assets so poor performance in one does not destroy the entire portfolio.

Practical example: Momentum trading in action

Imagine you are a momentum trader specializing in the S&P 500 operating via CFDs. The Federal Reserve announces an interest rate hike. Historically, this pressures stocks because it makes corporate borrowing more expensive.

You observe that the market reacts immediately and the S&P 500 begins to fall. Anticipating that this bearish trend will continue short-term, you open a short position (sell) in index CFDs.

To protect yourself: set a stop loss above the current price if the market recovers, and a take profit below if it continues falling. You sell 10 contracts at 4,000 points, with a stop loss at 4,100 and a take profit at 3,800.

If the index drops to 3,800, your position closes automatically with gains. If it rises to 4,100, it closes limiting losses. The strategy works because you have a plan before trading.

The reality of professional trading: Important statistics

Trading offers schedule flexibility and potential for significant profits. However, the reality is sober: only 13% of day traders achieve consistent gains over six months. Only 1% generate profitability over five years or more. Nearly 40% quit in the first month, and only 13% persist after three years.

These numbers reflect that trading is a skill learned through experience, and most participants are not willing to invest the necessary time.

Another important change: the market is being dominated by algorithmic trading, which accounts for 60-75% of total volume in developed markets. This makes it more challenging for individual traders to compete without access to cutting-edge technology.

Critical considerations before starting

Trading is not a shortcut to get rich quickly. It involves significant risks. The golden rule: never invest more than you are willing to lose completely.

Many beginner traders see it as a secondary activity while maintaining stable jobs. This is a smart strategy: it allows you to learn without destroying your financial security. Develop your skills with virtual money in demo accounts before risking real capital.

Frequently Asked Questions

How do I start trading? Educate yourself about financial markets, choose a regulated platform, open a demo account, develop a strategy, and practice before using real money.

What should I look for in a trading platform? Clear regulation, robust risk management tools, demo accounts, low commissions, and reliable customer support.

Can I trade part-time? Yes, many traders start this way, trading in their free time while maintaining jobs. Although it requires less time than day trading, it demands serious dedication and constant study.

Trading is a discipline that combines technique, psychology, and risk management. Those who understand it deeply have real opportunities in the financial markets.