Date: Wednesday, August 09 @ 00:34:21 CDT
Topic: Stocks and Bonds
A Stock Trader or a Stock Investor is a financial markets professional or firm, who buys and sells financial instruments, such as stocks and bonds. The individuals or firms trading in a principal capacity sometimes call themselves stock traders or simply traders. Many people across the world can call themselves stock traders or part-time stock traders, despite of having another profession in parallel with their regular trading activities in the financial markets. When a stock trader has clients, and acts as a money manager or adviser with the intention of adding value to his clients finances, he is also called a financial adviser or manager. In this case, the financial manager could be an independent professional or a large bank corporation employee. This may include managers dealing with investment funds, hedge funds, mutual funds, and pension funds, or other professionals in equity investment and fund management. A very active stock trader who holds positions for a very short time and makes several trades each day is a day trader. Other broad or specific designations for different kinds of stock traders include the terms: speculator, hedger, arbitrageur and market maker.
Stock traders usually need a stock broker, such as a bank or a brokerage firm, as intermediate. Since the spread of the Internet banking, it is usual to use an Internet connection to manage their own financial portfolios, including ordering the sell/buying orders, set stop losses prices and define buying/selling prices. Using the Internet, specialized software and a personal computer, stock traders make use of technical analysis and fundamental analysis to help them in the decision process. A stock trader utilize also several advising and information resources based on the Internet and the media, such as financial/business news and data firms (Reuters, Bloomberg, Financial Times, Yahoo! Finance, MSN Money, AFX News, Newratings, Forbes, BusinessWeek, Hoover's). They exclusively trade on their own behalf, as a principal, investing money on a share or other financial instrument, which they believe will increase in price aiming to sell it later with earnings. According to the trading techniques and strategy adopted, or the investing profile of each stock trader, its trading style can be called value investing, growth investing, day trading, swing trading, or trend trading.
Expenses, costs and risk
Trading activities are not free. First of all, they have a considerably high level of risk, uncertainty and complexity, especially for unwise and inexperienced stock investors seeking for an easy way to make money quickly. For the other side, stock traders face several costs such as commissions, taxes and fees to be paid for the brokerage and other services, like the buying/selling orders placed at the stock exchange. According to each National or State legislation, a large array of fiscal obligations must be respected, and taxes are charged by the State over the transactions and earnings. Beyond these costs, the opportunity costs of money and time, the currency risk, the financial risk, and all the Internet Service Provider, data and news agency services and electricity consumption expenses must be added.
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 Efficient market theory it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself. The wealth of investors such as Warren Buffet and others could be equally attributed to chance as well as to stock picking prowess. In a normal distribution of investors, many academics believe that the richest are simply outliers in such a distribution (e.g. in a game of chance, they have flipped heads twenty years in a row).
For this reason most academics and economists recommend that investors invest in funds that follow an index in the market, i.e. long-term and well-diversified investments.
Dart Board Method
Financial journals and newspapers such as the Wall Street Journal have done articles on stock picking in the past. One famous article involved a stock picking contest between a panel of Wall Street experts, the public and a dart board. One member was elected to throw darts at the Journal's stock page in order to select a portfolio. At the end of the experiment, the public and the dart board both beat the board of Wall Street experts. Was the dart board more savvy? The dart board's triumph over the Wall Street experts can be attributed to chance (one could also attribute the dart board losing to the experts to chance as well).
This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Stock trader".