From Novice to Professional: Everything You Need to Know About What a Trader Is and How to Become One

Do You Really Know What a Trader Is?

When you hear the word “trader,” you probably imagine someone in front of multiple screens speculating with money. The reality is more nuanced. A trader is any person or entity that buys and sells financial instruments — currencies, cryptocurrencies, stocks, bonds, derivatives, or commodities — seeking short-term profits. But here’s the key: not everyone operating in financial markets is a trader.

It is crucial to differentiate among three figures that are often confused:

The trader operates with their own resources, makes quick decisions based on data analysis, and seeks profitability over short horizons. It requires considerable risk tolerance and immediate reaction capacity.

The investor buys assets with the intention of holding them long-term. Although they also use their own resources, their approach is more measured and based on in-depth analysis of financial health and market conditions. The risk is generally lower.

The broker is a licensed and regulated intermediary that executes trades on behalf of clients. Unlike the trader, they require formal academic training and authorization from regulatory authorities.

Essential Steps to Become a Trader From Zero

If you have available capital and curiosity about the markets, here is the path you should follow:

1. Build a Solid Knowledge Base

There is no official “trader” diploma, but you can’t improvise either. You need:

• To read professional literature on financial markets and economics
• To follow economic, business, and technological news constantly
• To understand how global events impact asset prices
• To familiarize yourself with market psychology and how collective emotions move prices

2. Understand How Markets Work

Volatility is not chaos: it’s the result of predictable factors. You should understand:

• How prices fluctuate and why
• The role of economic data in market decisions
• How supply and demand determine asset value
• The importance of liquidity in your trades

3. Define Your Personal Strategy

Based on your risk tolerance, financial goals, and specific knowledge, you should choose:

• Which markets or assets you will trade
• Your trading horizon
• How much capital you will allocate to each trade
• Your maximum tolerable loss per trade

4. Select a Regulated Intermediary

You will need a trading platform. Look for one that offers:

• Official regulation and verifiable licenses
• Built-in analysis tools
• Demo account with virtual capital for practice without risk
• Good reputation and responsive customer service

5. Master Both Types of Analysis

Technical Analysis: Study charts, price patterns, trends, and indicators. It helps you identify optimal entry and exit points in the short term.

Fundamental Analysis: Examine the real economic data behind an asset. Why does it go up or down? What corporate or macroeconomic changes justify it?

Professional traders do not choose one or the other: they use both.

Assets You Can Trade as a Trader

The range is broad. Here are the main options:

Stocks: Fragments of ownership in companies. Their prices fluctuate based on business performance and overall market sentiment.

Bonds: Debt issued by governments or corporations. When you buy one, you lend money and receive periodic interest.

Commodities: Gold, oil, natural gas, and other essential goods are highly tradable and volatile.

Forex (Currency Pairs): The largest and most liquid market in the world. Here, currencies are bought and sold in pairs according to exchange rate fluctuations.

Stock Indices: Groups of stocks representing the performance of entire markets or sectors (S&P 500, Nasdaq, etc.).

Contracts for Difference (CFDs): Instruments that allow you to speculate on price movements of any of the above without owning the actual asset. They offer flexibility, leverage, and the ability to trade both upward and downward.

The Five Trading Styles: Which One Is Yours?

Day Trading

Execute multiple trades during a day, closing all positions before the market closes.

Advantages: Potential for quick profits, no risk of overnight surprises.

Disadvantages: Requires constant attention, generates high commissions based on volume, emotionally exhausting.

Scalping

Make dozens or hundreds of small trades aiming for minor but consistent gains. You capitalize on momentary liquidity and volatility.

Advantages: Multiple profit opportunities in a single session.

Disadvantages: Demands extreme concentration; a small mistake in one of many trades can wipe out your daily gains.

Momentum Trading

Identify assets with strong movements in one direction and “follow the momentum.” Seek to capture market inertia.

Advantages: Can be very profitable in trending markets.

Disadvantages: Requires precision to identify when a trend begins and ends; easy to enter late or exit early.

Swing Trading

Hold positions for days or weeks, taking advantage of price oscillations.

Advantages: Significant returns, requires less time than day trading, less emotional stress.

Disadvantages: Greater exposure to overnight and weekend changes; risk of negative surprises while sleeping.

Technical and Fundamental Trading

Base all decisions on in-depth analysis (technical, fundamental, or both) rather than reaction speed.

Advantages: More informed and deliberate decisions.

Disadvantages: Complex to master, requires a high level of financial knowledge and interpretative skills.

Essential Tools to Protect Your Capital

A solid strategy is useless without risk management. Here are the fundamental tools available on regulated platforms:

Stop Loss: Automatic order that closes your position at a predetermined price, limiting your losses.

Take Profit: Order that secures gains by closing the position when a target price is reached.

Trailing Stop: Dynamic stop loss that adjusts automatically as the market moves in your favor.

Margin Call: Alert that notifies you when your available margin falls below a threshold, forcing you to close positions or deposit more funds.

Diversification: Trading multiple assets and markets so that poor performance in one does not ruin your week.

A Real Case: How a Momentum Trader Would Operate

Imagine you are a momentum trader specializing in the S&P 500 index via CFDs.

The Federal Reserve announces an interest rate hike. Markets typically see this as negative: it limits corporate borrowing and reduces risk appetite.

You observe that the S&P 500 begins to decline in a clear trend. As a momentum trader, you anticipate this decline will continue in the short term.

Action: You open a short position (sell) on 10 contracts of the S&P 500 at 4,000 points.

Protection: You set a Stop Loss at 4,100 (if I’m wrong, I lose little) and a Take Profit at 3,800 (if I’m right, I exit with gains).

Possible outcome 1: The index falls to 3,800. Your position closes automatically. Profit realized.

Possible outcome 2: The index rises to 4,100. Your Stop Loss activates. Limited loss.

In both cases, your risk was controlled from the start.

The Statistics You Must Know (And That Are Quite Discouraging)

Here comes the uncomfortable part. According to academic research:

• Only about 13% of day traders achieve consistent positive profitability over six months
• Only about 1% make profits over five years or more
• Nearly 40% quit in the first month
• Only 13% persist after three years

Why? Usually due to: lack of discipline, emotions clouding judgment, inconsistent strategies, and overleverage.

Additionally, the market is evolving. Algorithmic (automatic trading via programs) currently accounts for between 60-75% of total trading volume in developed markets. This increases efficiency but also volatility and makes it harder for individual traders to compete.

What You Absolutely Must Remember

1. Never invest more than you are willing to lose. This is not motivational fluff; it’s a financial survival rule.

2. Trading should not be your only income source. Keep a stable job while learning. Trading can be supplementary income, not a replacement.

3. Continuous education is mandatory. Markets change, new tools emerge, strategies that worked yesterday fail today.

4. Risk management separates winners from losers. It’s not about winning every trade; it’s about losing as little as possible when you fail.

5. Practice on a demo account before real money. Use platforms offering virtual capital to practice. You will learn without risk.