Investing in the markets is one of the most important steps to take if one wants to retire and live in relative safety. There are many ways to do it, ranging from dividend growth investing to buying shares of an ultra low-cost passive index fund, or even REITs. But there is also another reason to gain exposure to the market: Trading for a living, aka being a “Full-time” trader. This is no doubt one of the more exciting reasons to own stocks, options or even trading with various currency pairs on the foreign exchange market.
But what does a Full-time trader actually do?
That depends. What type of trader is he? Does he work for himself, managing his own and other client’s accounts, or is he trading for a large bank or hedge fund?
There are several types of traders, for example:
“¢ FX Traders
“¢ Commodity traders
“¢ Portfolio managers for individual clients
“¢ Fixed income traders
“¢ Even low-cost passive index funds require trading, as the funds need re-balancing from time to time
An interesting piece on the evolution of instruments is that most of them were developed to hedge some form of risk, and were originally not intended to speculate on. For example, a Firm which has foreign currency exposure due to the nature of its business may very well hedge its currency risk by contacting a bank or broker and asking to enter a forward contract. This is usually beneficial for the business since the cost of this is computable and can be taken into consideration when preparing financial decisions, while the potential change in the exchange rate is impossible to forecast accurately.
Regardless of the asset class or type of trader there are several things in common for them and the most important part of it is usually the strategy.
Not one trader who wants to make a living out of his profession can do so without having a rock-solid strategy, either created by himself or provided as an investment policy by the CIO. A strategy can be written down and is usually full of well-defined rules and guidelines. The times of entry, exits, taking profits and cutting losses must be set in order to trade successfully.
Another common tool used by traders is a platform for receiving news, analysis and real-time data. The two most commonly used are the Bloomberg and Reuters terminals. Although somewhat out of reach for the casual trader due to their pricing, it is a must to have a reliable and accurate source of information, regardless of the traded instrument.
A platform or some link to the broker is obviously required, and in our times the most prevalent way to trade is online, as orders are easily entered and executed in the system, while staying cost-effective. For FX traders most brokers offer “no-commission” trades, where the fee of trading is built into the spread. This is usually geared towards the retail investor or smaller institutionals, as with an adequate account size it is rather easy to get access to the interbank FX market and trade directly with the big banks or other liquidity providers.
Since the data and news is provided by Bloomberg/Reuters, and the trading plan is well-defined by the investment policy there is only so much wiggle room left for a trader. Therefore most professionals in this field who are successful on the long run avoid the “Noise” which comes from various chatrooms, forums or other forms of online media. If the strategy is sound, then it has no added value to jump into the latest investment fad. However, if the retail investor wants to learn about upcoming events which might affect his daily trading, then it would be very beneficial to check sites specialising in this type of content.
Weekly economic calendars are freely available and are updated in real-time on sites like fxstreet.com or forexfactory.com. This is more than adequate for most FX traders who do not have access to a Bloomberg terminal. It is usually worthwhile to check these sites before the trading session begins, and mark those times where increased volatility or uncertainty is expected. A FED rate decision or an unexpectedly good macroeconomic data release can mess with the best strategy, as the affected currency pairs are usually experiencing very large swings.
As a summary, a “one-size fits all” plan does unfortunately not exist, and every trader does his thing somewhat differently. Common trait for successful traders is that they have their emotions in check as they follow their strategies, but as far as daily activities are concerned there is no definite guideline. A trader at Goldman is very likely bound by office politics, while a trader who is trading his own funds in full time for a living can do so from the comfort of his home without a commute..
Guest post by Rafael Peter of mxtglobal.com.
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