Types of traders in share market

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Marketopedia / Stock Markets Basic / Types of traders in share market

Each market participant has an individual approach to their involvement in the market. This will change and develop over time, as the market goes through different cycles. Risk tolerance determines how much you decide to invest or trade in the markets, and can ultimately help classify you as an investor or trader.

A trader is someone who looks out for potential opportunities, with the intention of making a gain when they can. Generally speaking, they take a short-term approach while considering both risk and reward when determining whether to move forward. They are unbiased regarding whether to initiate a long or short trade; we will cover this concept later.

There are different types of traders :

  1. A day trader is one who enters and exits positions within a single trading session. They prefer not to take on any risks overnight and thus make their decisions within the same day. For instance, they may purchase 100 shares of BHEL at 2200 at 9:15 AM and sell it at 2215 at 3:20 PM, yielding them a profit of Rs. 1500/-. Typically, a day trader trades around 5 to 6 stocks per session, or even more.
  2. A scalp trader is a type of day trader who usually makes numerous trades on any given day, purchasing substantial amounts of stock and holding it for only a short period of time in order to make a small but fast profit. For instance, one might buy 10,000 shares of BHEL at 3112 at 9:15 and then sell at 3112.2 at 9:16, making 2000/- in the process. Despite the fact that these traders go for quick profits, they remain conservative since their strategy involves taking on a little risk.
  3. Swing traders generally keep their position open for a longer period than other traders, typically ranging from a few days to several weeks. An example of this would be buying 100 shares of BHEL at 3112 on 12th June and then selling it at 3214 on 19th June.

Some of the most successful traders include George Soros, Ed Seykota, Paul Tudor, Micheal Steinhardt, Van K Tharp, Stanley Druckenmiller, and Rakesh Jhunjhunwala, among others. 

An investor is someone who purchases stocks with the hope of a large increase in value over time. They typically hold onto the investment for a few years, and there are two major categories.

  •  Growth Investors seek to identify firms that are likely to benefit from macro and industry trends. A good example of this in India is the investments made in Hindustan Unilever, Infosys, and Gillette India back in the 1990s. These stocks generated a lot of wealth for their holders due to the shifting dynamics of their respective industries.
  • Value investors will look to identify suitable companies regardless of whether they are in the expansion or mature phase, but have been driven down by short-term market response. A prime example of this is the share market downturn during the Covid crisis in March 2020. All worthwhile stocks plunged drastically in that period and made a speedy V-shaped recovery later on.

A number of acclaimed investors have made a name for themselves, including Charlie Munger, Peter Lynch, Benjamin Graham, Thomas Rowe, Warren Buffett, John C Bogle, John Templeton and Mohnish Pabrai.

What kind of an investor do you want to be?