Who's involved in Trading
As a trader, you'll come into contact with various individuals and bodies, and in some cases need their services to gain access to the markets.
Here we'll look at these 'market participants', their functions and their motivations – and importantly your relationship with them.
Retail Traders
The terms 'retail trader' or 'retail investor' generally mean a private individual who buys and sells financial instruments using a personal account, not on behalf of an organisation. So that will probably be you.
Retail traders generally deal in relatively small sizes, often in their spare time.However, some become semi-professional and use sophisticated technology and techniques from the comfort of their own homes.
As a retail trader you have access to an incredible range of financial markets, and can trade them in multiple ways to suit your preferences.
Let's say you decide to buy some shares. Would you be hoping to see long-term growth, accepting that the shares' value may fluctuate in the meantime? Or would you be hoping for a fast profit from short-term price movements, regardless of longer-term trends?
If you're looking for long-term growth, you're more of an 'investor', but if a fast profit is your goal you can call yourself a 'trader'. Investors are interested in overall price trends and the fundamental value of the assets they trade. Traders generally prefer to capitalise on volatility and the market reactions triggered by news events.
Broker
As a retail trader, unfortunately you can't just stroll into your local stock exchange and start dealing in shares.
To buy or sell in the stock market, and other financial markets, you'll generally need an authorised intermediary or broker to act on your behalf. You may be picturing a bowler-hatted City gentleman, but in fact it's more likely to be a company that provides an online trading platform.
A broker can be either a firm or an individual, and might offer:
Full service – actively managing your investments and providing personal advice.
Advisory management – providing recommendations but leaving the final decision to you.
Execution-only dealing – simply carrying out your instructions to trade, on demand.
Of course, the greater the input you want from your broker, the higher the fee you'll need to pay.