About a Career as a Stock Trader

A career as a stock trader can be financially rewarding, but it also involves a lot of stress and the risk of significant capital loss. There are a variety of ways to trade professionally, from buying and selling securities individually, to managing accounts for large banks or investment firms. Whatever path you pursue, the fundamental rules for success are very similar.

Function

A stock trader functions as a buyer or seller of securities. Some traders are long-term money managers who make only a few dozen investments per year; others are very high frequency scalpers who can make hundreds of transactions in a single day. Whether trading their own capital or managing someone else's account, stock traders perform the vital function of allocating capital to public companies and creating a marketplace for buyers and sellers to exchange securities.

Types

There are two basic types of stock traders: independents and professionals. Independent traders manage their own money, while professionals typically work for an organization and manage other people's capital. Sometimes the line between independent and professional is blurred, as in the case of small-scale investment advisers who manage their own account in addition to the accounts of a few preferred clients. There is usually very little obvious difference in competence between the two, as members of both groups trade the market full time, sparing no expense in testing and developing strategies designed to give them an edge. Independent traders often have somewhat more pressure to perform, however, since their livelihood depends on gains made in the market. Professional managers, by contrast, often have the added security of a salary.

Styles

There are multiple styles of stock trading, but two principal types are long-term and short-term trading. Long-term traders, also called position traders, are quite similar to fundamental investors in that they seek to capitalize off the dominant longer-term trend in stocks, ignoring daily or weekly price swings as irrelevant noise. Short-term traders, by contrast, avoid trying to forecast the overall long-term trend of stocks, and stick to trading on a daily or weekly time frame, seeking smaller, quicker profits over larger, less frequent returns. A trader's personality, approach, market opinion and risk-tolerance level play a large role in determining what kind of time frame he trades.

Benefits

Proficient traders can make a great deal of money, particularly if they manage large client accounts at prestigious investment firms. Participating in the global marketplace is also intellectually satisfying, as a trader must always be reading, thinking and analyzing information on a multitude of different topics, keeping herself apprised of the latest corporate and economic developments, and strategizing as to what she'll buy or sell in response to them.

Misconceptions

A primary misconception of stock traders is that they're all greedy, arrogant profiteers, blindly chasing profits wherever they may be found. While there are individuals who fit this stereotype, good traders are intellectually curious, good with numbers and above all else respect and control risk. Another misconception is that all traders are incredibly wealthy. While certain money managers at prestigious investment firms are indeed among the world's most affluent, lower-level professional and independent traders typically earn the equivalent of a good white-collar salary, with cyclical peaks and troughs depending on market swings and their own performance.