Stock trader


A stock trader or equity trader or share trader, also called a stock investor, is a person or company involved in trading equity securities and attempting to profit from the purchase and sale of those securities. Stock traders may be an investor, agent, hedger, arbitrageur, speculator, or stockbroker. Such equity trading in large publicly traded companies may be through a stock exchange. Stock shares in smaller public companies may be bought and sold in over-the-counter markets or in some instances in equity crowdfunding platforms.
Stock traders can trade on their own account, called proprietary trading or self-directed trading, or through an agent authorized to buy and sell on the owner's behalf. That agent is referred to as a stockbroker. Agents are paid a commission for performing the trade. Proprietary or self-directed traders who use online brokerages benefit from commission-free trades.
Major stock exchanges have market makers who help limit price variation by buying and selling a particular company's shares on their own behalf and also on behalf of other clients.

Stock trading as a profession/career

Stock traders may advise shareholders and help manage portfolios. Traders engage in buying and selling bonds, stocks, futures and shares in hedge funds. A stock trader also conducts extensive research and observation of how financial markets perform. This is accomplished through economic and microeconomic study; consequently, more advanced stock traders will delve into macroeconomics and industry specific technical analysis to track asset or corporate performance. Other duties of a stock trader include comparison of financial analysis to current and future regulation of their occupation.
Professional stock traders who work for a financial company are required to complete an internship of up to four months before becoming established in their career field. In the United States, for example, internship is followed up by taking and passing a Financial Industry Regulatory Authority-administered Series 63 or 65 exam. Stock traders who pass demonstrate familiarity with U.S. Securities and Exchange Commission compliant practices and regulation. Stock traders with experience usually obtain a four-year degree in a financial, accounting or economics field after licensure. Supervisory positions as a trader may usually require an MBA for advanced stock market analysis.
The U.S. Bureau of Labor Statistics reported that growth for stock and commodities traders was forecast to be greater than 21% between 2006 and 2016. In that period, stock traders would benefit from trends driven by pensions of baby boomers and their decreased reliance on Social Security. U.S. Treasury bonds would also be traded on a more fluctuating basis. Stock traders just entering the field suffer since few entry-level positions exist. While entry into this career field is very competitive, increased ownership of stocks and mutual funds drive substantial career growth of traders. Banks were also offering more opportunities for people of average means to invest and speculate in stocks. The BLS reported that stock traders had median annual incomes of $68,500. Experienced traders of stocks and mutual funds have the potential to earn more than $145,600 annually.

Risks and other costs

Contrary to a stockbroker, a professional who arranges transactions between a buyer and a seller, and gets a guaranteed commission for every deal executed, a professional trader may have a steep learning curve and his ultra-competitive performance based career may be cut short, especially during generalized stock market crashes. Stock market trading operations have a considerably high level of risk, uncertainty and complexity, especially for unwise and inexperienced stock traders/investors seeking an easy way to make money quickly. In addition, trading activities are not free. Stock speculators/investors face several costs such as commissions, taxes and fees to be paid for the brokerage and other services, like the buying/selling orders placed through a stock broker stock exchange. Depending on the nature of each national or state legislation involved, a large array of fiscal obligations must be respected, and taxes are charged by jurisdictions over those transactions, dividends and capital gains that fall within their scope. However, these fiscal obligations will vary from jurisdiction to jurisdiction. Among other reasons, there could be some instances where taxation is already incorporated into the stock price through the differing legislation that companies have to comply with in their respective jurisdictions; or that tax free stock market operations are useful to boost economic growth. In the United States, for example, stock gains are generally taxed at two levels: For long-term capital gains is 20%. For short-term trades. Beyond these costs are the opportunity costs of money and time, currency risk, financial risk, and Internet, data and news agency services and electricity consumption expenses—all of which must be accounted for.
Stock market volatility can trigger mental health issues such as anxiety and depression. This fits in with research on the long term effects of the stock market on a person's mental health. Seasoned, experienced stock traders and investors generally achieve a level of psychological resilience able to deal with these detrimental factors in the long run or otherwise risk continuous suffering from some type of mental health issue during the course of their careers or financial activities which are dependent on the stock market.

Methodology

Stock speculators and investors usually need a stock broker such as a bank or a brokerage firm to access the stock market. Since the advent of Internet banking, an Internet connection is commonly used to manage positions. Using the Internet, specialized software, a personal computer or a smartphone, stock speculators/investors make use of technical and fundamental analysis to help them in making decisions. They may use several information resources, some of which are strictly technical. Using the pivot points calculated from a previous day's trading, they attempt to predict the buy and sell points of the current day's trading session. These points give a cue to speculators, as to where prices will head for the day, prompting each speculator where to enter his trade, and where to exit. An added tool for the stock picker is the use of stock screens. Stock screens allow the user to input specific parameters, based on technical and/or fundamental conditions, that he or she deems desirable. Primary benefit associated with stock screens is its ability to return a small group of stocks for further analysis, among tens of thousands, that fit the requirements requested. There is criticism on the validity of using these technical indicators in analysis, and many professional stock speculators do not use them. Many full-time stock speculators and stock investors, as well as most other people in finance, traditionally have a formal education and training in fields such as economics, finance, mathematics and computer science, which may be particularly relevant to this occupation – since stock trading is not an exact science, stock prices have in general a random or chaotic behaviour and there is no proven technique for trading stocks profitably, the degree of knowledge in those fields is ultimately neglectable.
One popular example is to base trading decisions on the trend direction of a stock's price action. There are basically three directions a stock can trend in: up, down, and level or flat. These trends are determined by using certain technical indicators such as candlesticks, moving averages, bollinger bands, standard deviation tunnels. These indicators should be used in different time frames.

Stock picking

The efficient-market hypothesis

Although many companies offer courses in stock picking, and numerous experts report success through technical analysis and fundamental analysis, many economists and academics state that because of the efficient-market hypothesis it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself. In the distribution of investors, many academics believe that the richest are simply outliers in such a distribution. When money is put into the stock market, it is done with the aim of generating a return on the capital invested. Many investors try not only to make a profitable return, but also to outperform, or beat, the market. However, market efficiency, championed in the EMH formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market.
Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This "random walk" of prices, commonly spoken about in the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put their money into an index fund.

Mandelbrot's fractal theory

Tenets of Fractal Finance

Mandelbrot delves into several key principles of fractal finance in The Misbehavior of Markets: A Fractal View of Financial Turbulence:
  1. "Inherent Market Turbulence: Markets are described as chaotic with price fluctuations at different time scales, contrary to the conventional view of market stability.
  2. Increased Market Risk: The authors show that markets are riskier than standard theories suggest, with frequent extreme events.
  3. Market Memory: Contradicting the efficient market hypothesis, the authors claim that markets have memory, affecting future price movements.
  4. Self-Similarity Across Time Scales: Financial markets exhibit similar patterns at different levels.
  5. Nonlinearity of Markets: Small changes can lead to large, unpredictable outcomes.
  6. Human Behavior in Markets: Human emotions and behaviors significantly influence market dynamics."