The capital market is widely acknowledged as a prime investment option. Globally, investors look forward to higher returns through trading in securities and other financial assets. Investors or traders can be classified into several types based on the resources, strategies adopted, and styles.
Read on to learn more about different categorizations of traders active in the markets.
Open Trading Account and Start Trading!
A stock trader undertakes the sale/purchase of securities and other financial assets to generate a profit. A trader can be a professional representing a finance enterprise or individuals trading on behalf of themselves.
Here are some of the primary types of traders:
Fundamental traders usually focus on company–specific research to finalize their trading pattern. They typically analyze company fundamentals from short and long-term perspectives and make fact-based logical decisions.
Noise trading style means making impulsive investment decisions without analyzing the fundamental data of companies. Noise traders attempt to profit from short-term dealings based on trends.
Arbitrage traders buy and sell securities / financial instruments simultaneously in different forms or markets. They attempt to profit from the price difference of similar instruments. Market inefficiencies are the primary source of profits for arbitrage traders. Increasing levels of digitalization, however, is reducing this scope. Arbitrage traders are often associated with hedge fund trading.
Market timers pursue the logic of timing as crucial and attempt to chart a probable directional movement path of the stocks they intend to trade. They typically use economic data and other metrics to plan their forecasting model. Timing traders are more successful in short-term trading.
Sentiment traders identify and participate in market trends. They use analytical methods to spot securities that follow market movements and attempt to make the best use of the momentum.
Sentiment traders can be subdivided into Swing Traders and Contrarian Traders. Swing Traders aim to grab the best market change opportunity. Contrarian Traders are cautious about excessive market swings and utilize technical indices to identify mood reversal signals in the market.
Besides returns, the capital market is associated with a high-risk- factor. Any changes in market dynamics cause windfall gains for some and heavy losses for others. Analytical skills, risk management, adaptability, and quick decisions help traders effectively handle market operations. Therefore, only some types are ideal, and success depends on many parameters.
You must take expert professional guidance to chart your course in the markets. Motilal Oswal, for example, is an online investment expert helping investors create wealth for over 30 years. They offer services from portfolio rebalancing to AI-powered investment guidance.