What is a Trader? What does its activity consist of? What characteristics distinguish him from the investor? How to become a trader? From the choice of stockbroker to the development of a trading plan, including the use of stock market tools, Café de la Bourse goes back over the fundamentals and presents its advice to you to become a better stock market trader.
Discover the pitfalls to avoid, our profile of the best traders, and our selection of trading training for anyone wishing to become a stock market trader.
Also find in this file our broker comparison, our video 10 tips for starting online trading, as well as our ebook 81 tips for investing in the stock market.
What is a Trader?
Trader and investor: what are the differences between these market players?
You might be wondering what is a trader? What is trading? And above all, what are the differences between trading and investing? A trader is a person who buys and sells financial products in the financial markets. To trade is therefore to position oneself on financial assets with the aim of realizing a capital gain at the time of resale. In this sense, a trader is, for example, different from a financial analyst whose job is to carry out studies of companies listed on the stock exchange and to monitor macro-economic news, in particular in order to advise traders and portfolio managers.
The trader differs from the investor by the duration of his position. While investors are generally positioned for the long term, traders often favor short-to-medium-term gains. Some, moreover, only hold their positions for a few seconds to a few minutes, or for only a few hours.
There are also robot traders that allow you to practice algorithmic trading. This is systematic trading (buy and sell orders are based on algorithms) as opposed to discretionary trading (buy and sell orders are based on the decision of the trader executing the order).
Automated trading may concern the individual investor who will then invest via a robot trader. But it is above all the result of financial institutions (banks, management companies, and hedge funds) that practice it on a large scale: this is what is called high-frequency trading. This form of trading makes it possible to generate profits through millions of automated microtransactions.
Salaried trader and independent trader: two statuses for the same activity
Trader, is it a job? Yes of course! But be aware that there are two types of traders: the salaried trader and the independent trader.
The salaried trader is a market operator, working for a banking establishment, whose salary is fixed and who also receives a bonus linked to his earnings but depending on the goodwill of his hierarchy.
The independent trader, who trades for his own account (it is often called a proprietary trader), works for himself and his income corresponds to his earnings. He does not receive a salary since he is self-employed.
There are therefore several trader statuses that cover very different realities.
In this article, we will focus on presenting the activity of own account trading and detailing the best practices to put in place when you want to become an independent trader.
You may be wondering who can trade on their behalf? In theory, anyone can become a home trader. You will still need to learn about trading and devote a large part of your time to it. However, it is possible to be a self-taught trader and make a living from it.
You do not want to go that far and want to keep another professional activity but you are wondering how to trade when you are working? It’s more complicated but quite possible too. It will only require more organization and will partly determine your trading style and the assets traded. It will be easier to trade Forex in the evening than scalping stocks in the middle of the morning if you have a busy job.
There are nearly 15,000 retail traders in France according to a study by the AMF on retail investors on CFD and Forex trading in France, carried out between 2009 and 2013. If we count Stock Exchange trading and raw materials, and the trading of derivatives other than CFDs, there are probably tens of thousands of people in France who engage in the practice of trading. However, it is very often a complementary activity or a hobby. Few independent traders make a living from trading. There are no more than a few hundred in France, according to a survey by Les Echos of retail traders in France.
How much does an independent trader who manages to live off his earnings earn? The amount varies greatly depending on the initial investment amount but with a capital of 100,000 euros, it is not impossible to earn 5,000 euros per month. With 10,000 euros of investment and using a little more leverage, the income will be more in the order of 1,000 euros per month. However, this can be enough to build up a nest egg by keeping your main activity in order to then have sufficient capital to devote yourself completely to your activity as an independent trader.
How to trade in the financial markets?
Do you want to trade on your own account and want to know more about trading on the financial markets? We will answer in the following paragraphs the questions “how to trade online and how to trade on the stock market?” “.
You will first need to be very up-to-date on 5 absolutely essential trading themes: the role and choice of broker, the different existing trading styles and the one that is best suited to your personality, the different assets on which to position yourself, and the absolute necessity of clearly determining which ones you are going to favor, the times when you can/will trade and what this implies in terms of choice of assets, placing orders and the different solutions that will allow you to secure as much as possible your positions.
Choose your stock broker, the financial intermediary that allows you to trade
The broker is the indispensable partner of the trader. This financial intermediary which makes it possible to buy and sell assets is necessary for the trader who could not exercise his activity without him.
Trader and broker or trader and broker are not opposed. These are two professions that cannot work without each other.
The broker provides a trading platform, tools, graphical analysis software, educational materials, which allow the trader to position himself effectively on the financial markets.
“Who to trade with? Which broker to choose when you want to become a proprietary trader? » are the first questions to ask themselves for anyone who wants to exercise the activity of an independent trader.
First, it is particularly important to choose a quality institution. Check the notoriety and seriousness of your potential future brokers as well as the bank or institution to which they may be attached. To do this, you can help yourself by consulting the list of authorized investment service providers, the REGAFI register, or the list of authorized intermediaries in the financial investment adviser (CIF) category on the ORIAS website.
Choose an online broker who will provide you with suitable tools: trading platforms with real-time prices, technical analysis tools, customer service, training, etc. You will also have to choose your broker according to the financial markets on which you wish to trade. You may not want (and rightly so) to confine yourself to the CAC 40, and should therefore be attentive to the various stock exchanges and financial products available.
Finally, brokerage rates and fees should also be taken into account when choosing your broker. Compare the transaction costs offered by the different brokers, and possibly the size of the spread, that is to say, the difference between the purchase price and the sale price if the broker is remunerated in this way.
Online broker comparison for trading on the stock market
Determine your trading style and refine your investment strategy
To determine your trading style, you should consider your investment horizon (short, medium, or long term) and the duration of your positions. The position trader will hold his position for a few weeks or months. The swing trader will keep them for a few weeks to a few days, the day trader for a few hours, and the scalper for a few seconds!
To define what type of trader you are, you will also have to take into account your investor profile and your risk profile, but also your skills and your faults, your character, and your personality in order to create a trading strategy adapted to your personality.
There are, of course, some skills required to be a trader, common to all profiles (such as expertise in graphic analysis, in-depth knowledge in terms of indicators and calculation of financial ratios, or even the fact of knowing how to show blood -cold), but some qualities are unique to a trading style. For example, it will be difficult to opt for scalping if you are a thoughtful, calm person, who takes a long time to think about all his decisions. It is also difficult to opt for position trading if you are an impulsive person, who thrives on action, hates procrastination, and always trusts your intuition.
Each style can be suitable for a novice trader or an experienced trader, but it is recommended to define a trading style before you even position yourself in the financial markets and to stick to it afterward in order to display consistent trading. You might feel like you’re putting yourself in a straightjacket and limiting your options, but that won’t be the case. The vast majority of traders immediately subscribe to a trading style that they often identify after the fact.
What does a trader trade?
A trader buys and sells all financial assets, either directly or via derivatives. It can position itself in all the financial markets. A trader can therefore be present on the equity market and trade live securities via the SRD (Deferred Settlement Service) for example, but also derivative products to position themselves on a stock market index and, for example, trade the DAX or trade the CAC 40.
The trader can also use derivatives to trade the indices of a sector of activity such as the banking sector or the pharmaceutical sector for example. It can also position itself on equities, upwards or downwards, via stock market products such as warrants or turbos for example. A trader can also position himself on the foreign exchange market. We will then talk about trading Forex but he can also position himself on virtual currencies and trade Bitcoin or any other cryptocurrency. Finally, the trader can also position himself on the commodity market and thus trade gold or trade oil for example.
In view of the importance of the markets accessible to the trader’s own account, one could wonder in what to trade, what value to trade, what currency to trade. You will have to choose your investment universe based on your skills, your knowledge, and your tastes as well as your trading style, but also, and we think about it less, the time of day or week during which you can trade.
When to trade which assets?
Most independent retail traders have a professional activity, especially at the beginning. It is therefore a safe bet that you will not be able to trade all the time and at any time, which may affect the assets you will trade given that the various stock exchanges are not all open at the same time.
Thus, the day is the time during which the European markets are open, the afternoon and evening the US and Canadian markets, and the Asian markets at night.
Note: the Forex or foreign exchange market is the only financial market open 24/7. Many derivative products are also accessible at any time. In addition, the offer tends to expand. For example, we can cite the release of a Turbo 24 from the broker IG which, unlike its peers, is quoted continuously 24/24 and 5/7. Derivatives allow the trader to position himself on a large number of underlying, stocks, bonds, commodities, currencies, and therefore offer the trader the possibility of investing in all financial markets without exception.
Take a position on the markets and place stock market orders
To buy and sell securities on the stock market, you must therefore first open an account with a broker that will allow you to place your stock market orders. You must first select the financial asset in which you wish to invest, place a purchase order specifying the price at which you wish to acquire it, the number of securities you wish to buy, and whether you wish to make your payment in cash or use the deferred settlement service (valid only on a securities account and for certain shares only).
To define the price at which you want to buy your security and to cut the position in the event of downward fluctuations, many stock market orders exist. You will need to know everything about limit stock market orders, best limit stock market orders, market stock market orders, and stock market orders with a trigger threshold or trigger range, but also about trailing stop orders and take profit orders in order to always be able to choose the most suitable order for your investment strategy, while protecting your position according to the loss you are ready to accept and respect the money management rules that we will discuss in more detail later in this article.
8 tips for successful trading in the financial markets
To become a successful trader, establish a trading plan and stick to it
A trading plan allows you to know how to act in each situation because you will have thought about it before. There’s nothing worse than making a decision in the heat of the moment. Would a businessman have the idea of creating a business without drawing up a business plan beforehand?
Your trading plan should also allow you to set achievable goals. To begin with, a beginner should set one goal: not to lose. Then, if you can do it, try aiming for a small goal. If you manage to reach it, then you can try to aim for a bigger performance. Success is found inconsistent.
Did you take the time to make a trading plan? Stick to it scrupulously! Just because you hear about a new miracle indicator doesn’t mean you have to change your plan. You will often hear about new martingales to win without ever losing. Stick to your plan and forget the dream salespeople!
Be careful, beginners will often make the mistake of taking a position without respecting the plans or strategies previously put in place because it is more exciting to be in the market than to follow its evolution. Be rigorous with yourself in respecting your trading plan, every day and over time.
To become a good trader, apply the rules of money management
Some beginners are not shocked by risking 15 or 20% of the capital on a transaction. The main rule of money management is simple. You should never risk more than 1 or 2% of your account on a trade.
Many traders always take positions of a fixed amount. It’s a big mistake. You must commit a sum of money in trading according to the market and your capital, not according to your desires.
To become a good trader, avoid spreading yourself too thin
Diversification is a good thing when you are an investor.
But a beginner in trading has an interest in following a single strategy at the beginning with a very limited investment universe: not trying to trade on the equity market, on the currency market, and on the commodity market at the same time. Also avoid investing in a multitude of stocks or currency pairs, for example.
Do not try to revolutionize the world of trading either. It is better to use a good old method that has proven itself over the last decades rather than looking for a new system that would allow you to earn a lot more. The best jams are made in old jars.
To become a successful trader, be careful with leverage
Leverage is indeed a double-edged sword.
You will always be very tempted to take big positions to make a lot of money, but will you really be careful when using your leverage? Generally, no. You will often tend to think only of gains when taking a position. Remember that if you can earn say €8,000 by taking a position in the market, you can just as quickly see it go up in smoke.
Our advice to become a good trader:
- to avoid making mistakes, never exceed a leverage effect of 2 or 3 if you are an insider, limit yourself to a leverage effect of 5 if you are an ultra seasoned trader;
- try to take a small position and double it if you are in the right trend.
To become a good trader, know how to cut losses
Before you can win, learn not to lose.
It is essential to always protect your capital with a so-called “ stop-loss ” order (“cut the losses”). A motorcyclist must use a helmet to protect his life, you must likewise use a stop loss to protect your capital.
Our advice :
- never take a position without a stop loss order, even if you are at your computer monitoring prices, even if you practice Day Trading;
- place your stop loss before validating your order.
Common mistake: accumulating losing positions without wanting to cut them. As long as the position is open, the loss does not exist (the famous saying “not sold not lost”). However, a latent loss is indeed a very real loss at the moment T.
It is, therefore, better to quickly cut a losing position. And the sooner the better, because the bigger the loss, the harder it will be to close the trade.
To become a good trader, keep your cool
Be patient in order to look for the right opportunity and be able to wait for market conditions to be favorable to the strategy applied.
You shouldn’t allow yourself to be overwhelmed by your emotions and give way to trader stress, but you shouldn’t ignore them either. Knowing how to manage your emotions is one of the keys to success for a trader.
Trust your judgment. Many traders do not analyze the markets and have no opinion. They are content to read reports and analyses published by professionals. Is this the right way to learn to trade? No, obviously. And by following the advice of others, you will be vulnerable because you will not be able to spot their mistakes. Trust your reasoning.
To become a successful trader, trade with money you don’t need immediately
Whenever possible, you should trade with money you don’t need to live on. On the one hand, because it is not excluded that you could lose it and, on the other hand, because by trading with money that you need to live, you will not be able to properly manage your emotions and they will necessarily take over your rational reasoning.
To become a good trader, dedicate time to learning
Trading, a profession in its own right, is like all professions in the world: you must first learn it. It is not enough to open a trading account and read some daily analysis.
It is necessary to be trained and informed with the help of the many specialized works that exist but also training in trading, an essential step for anyone wishing to trade on the stock markets or any other financial market, and finally, practice in simulation, to begin with.
Why become a trader?
Motives are important. Take the time to research the reasons for your desire to become a trader. Answer the questions: why be a trader? Why trade? If you start trading with the wrong motivations (desire to be very rich, desire to be famous, desire to be accountable to no one, desire to work from home, etc.), you will very quickly risk being disappointed with trading. You will then take higher risks to achieve your bad goals.
Trading is not a do-it-yourself hobby or a way to get rich quickly without doing much. Remember that you will be in the markets competing with professional traders and robot traders practicing automatic trading. It is, therefore, better to approach stock market trading with seriousness and passion!
You should choose to trade because you like to trade, you are interested in the financial markets and the macro-economy, you want to carry out an activity which gives pride of place to analysis, which allows you to take advantage of your great ability to concentrate, your seriousness, and your independence of mind.
The best traders in the world
It is difficult to think about trading and the activity of a trader without mentioning the best traders, the traders who have succeeded and earned several billion. Among well-known traders and traders who have made a fortune, we can notably cite Georges Soros at the head of the Hedge Fund “Soros Fund Management” which blew up the Bank of England in 1992 thanks to a short position of 10 billion pounds. sterling which earned it a billion and forced the British institution to withdraw its currency from the European monetary system.
John Paulson became famous during the subprime crisis. He won $15 billion by betting on falling US mortgage-backed debt securities. We can also mention the case of Sylvain Duport, this French proprietary trader who twice won, in 2004 and 2005, the Stock Exchange Capital Trophies with a capital multiplied by 30 for the first edition and by more than 80 for the second. He was then hired by Boussard et Gavaudan, a group made up of several directional and alternative fund management companies. Sylvain Duport, a true autodidact, is therefore one of the few people to have bridged the gap between independent trading on his own account and professional trading.
Among the traders who have made history, there are also the unfortunate traders, those who caused the banks or management companies for which they worked to lose colossal sums. Jérôme Kerviel is the best-known example in France. He caused Societe Generale to lose 4.9 billion euros in 2008, an amount three times greater than the losses of Nick Leeson, who sank Barings in the early 1990s.
Trading training: the best training offers for investing
The independent trader can, as a true autodidact, train himself on the job by reading books and articles, but also and above all, by devoting a small capital to his learning of trading.
However, it is also possible to follow training courses intended for own account traders. Many solutions exist in France. One can in particular quote the offer of Bernard Prats-Desclaux who started out as an independent trader, before joining a hedge fund in Switzerland for about ten years. He is also known for being the author of two books (“Market Strategies” and “Trading on Futures Contracts”). He now devotes himself to managing his own trading account and provides training for individual traders. The price of training varies between €49 (for video training) and €2,490 for the most complete training.
Celtinvest training (Paul Marcel) covers stock trading, options trading, and futures contract trading. This is a 3-in-1 training. They are aimed at neophytes as well as experienced traders. The training is individual and offered online via Skype. This training includes a 6-month post-training follow-up, essential for a good start. Students can also become a member of a private self-help group. The price of the 3-in-1 trading training is €3,120.
US-based freelance options trader Michael Rousselle offers free training videos on his YouTube channel. In addition to free training, it is possible to subscribe to coaching offers for €89 per hour (knowing that it has a 3h +1h offer offered at €259).
The risks of trading
You are seduced and would like to get started but you still wonder: trading, is it dangerous? Trader, does it work? Trading, is it profitable? Your fears and questions are legitimate. Trading involves a number of risks inherent in financial markets. The most obvious and the most formidable is that of capital loss. It is possible to lose all of the sums invested or even more on certain derivative products with leverage.
Becoming a trader on your own account also means working alone with the risk of feeling isolated and alone in the face of your successes but also in the face of your failures. No one will tell you what to do or how to do it. You are the sole master of your decisions (and therefore of your positions). This can be perceived as an advantage at the start but also as a hardship over time. The independent trader can therefore only count on him and him alone. He must therefore be well trained. There is nothing worse in the face of your order book and charts than being ill-prepared. The training courses but also the articles, webinars, and live trading that are flourishing on the web can help you. The trader must also be an expert in the application of money management rules. This means not only that he will adapt the size of his positions to the size of his portfolio (a position must not represent more than 1 to 2% of his portfolio), that the targeted gain will always exceed the risk accepted and above all, that he will always make sure to have more winning positions than losing ones. Always keep in mind that an accomplished trader is one who knows how to take his gains and cut his losses.
Finally, do not trade anything and everything. Determine an investment universe and, in the beginning, confine yourself to only a few assets. If you are a forex trader, try your hand at EUR/USD, for example, before adding another pair and then others when you are more experienced.
In conclusion, remember that 89.4% of retail traders lose money according to the Study of the results of retail investors on CFD and Forex trading in France carried out by the Autorité des Marchés Financiers on the basis of the results obtained by nearly 15,000 French retail traders from 2009 to 2013. Only 10% manage to achieve positive performance. Too many individuals still think that it is enough to open a trading account to earn money. Be careful, there are many called and few elected. In order not to lose money, then to accumulate the gains and finally succeed in living off it, it takes knowledge, practice, and time.
A few questions about trading and the stock market trader?
What is trading?
Trading is the activity of buying and selling financial assets on different markets (stocks, currencies, commodities, derivatives ) with the aim of making money by realizing a capital gain.
How to trade in the financial markets?
First, you will need to determine what your trading style is and what types of assets and markets you wish to trade. Then, you can open an account with a stockbroker ( Bourse Direct, Boursorama, Degiro, etc.) chosen according to these parameters and place your first stock market orders. It is recommended to train well beforehand and to open a demo account.
What training to become a trader?
You can become a trader by training yourself using the many educational materials made available by many online brokers. But you can also opt for training, certifying or not, online or physical, sometimes eligible for the personal training account.
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