I have been asked what my job is many times. To be honest, it has been very hard to explain what I and other traders do for a living. Many people don’t even know what Forex trading is.
Hard to imagine right?
Just simplifying to the most basic explanation won’t work either, because it leads to more questions. How does one become a trader? What do you do as an analyst? What do you teach? What is the job like o n a daily basis? These are all questions I have been trying to answer for the layperson who has little knowledge about the economy, let alone trading markets.
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The Trader’s Rolls
If you trade Forex and equities for yourself with an account containing less than 100.000 units (e.g. EUR/USD), you are considered a retail trader.
A retail trader speculates on different markets and trades with either:
- his personal account; or
- an account that was given to him by another retail trader to manage.
Then there’s the proprietary (prop) trader, who trades:
- different instruments (Forex, stocks, bonds, commodities, equities etc); with
- the investment firm’s own money, as opposed to a depositors’ money.
The prop trader has the complete freedom to speculate with the investment firm’s funds on all markets.
But unlike market makers he cannot move the market in periods of low volatility. The amount of money that a prop trader manages is huge too – usually above 5.000.000 units. The prop trader usually trades with a team, but does not have to share profits with a team.
He has a highly coveted position and is the most experienced – usually 10 years trading room experience behind him before assuming this role.
Now to the Institutional trader, who also usually manages relatively large amounts of capital.
- buy and sell different markets, securities and derivatives; for
- accounts they manage for a group or an institution.
Pension funds, mutual funds, insurance companies, exchange traded funds (ETFs), private investment funds – all common for an institutional trader.
Note that the term institutional trader refers to the above mentioned entities and that there are also individual trader teams who trade for an institution.
So clearly, the term trader can be interpreted differently depending on the job you do.
Forex Analyst – Who is He
The job of the analyst is to provide analysis to different parties. Some of them are institutional level trading desks, funds and big investors. They also provide analysis through brokers and other platforms, into the retail market. There are different types of analysts too, including pre-fact and post-fact.
Pre-fact analysts are highly specialised.
Their job is to not just predict price movement but also give possible levels where price should turn (possible entries) with targets.
I am a pre-fact analyst.
I spend the day in front of screens:
- watching the price action
- coming up with trading ideas
- letting people know what’s going on in the market; and
- where they can enter into profitable positions.
My analysis must be very clear and concise. Each individual will obviously have their own opinions, but I personally always stick to my guns. There are two types of pre-fact analysts:
- technical analysts who analyse price action movements based on chart patterns, candlesticks, historical vs now moment movement; and
- fundamental analysts who analyze different micro/macro economical bank plus institutional reports – reflecting where the big players work and the orders are sitting.
I’m a technician but I always insert important fundamental views in my analysis to help traders better understand the structure of price action flow and possible consequences.
And it’s not an easy job.
Trading is Like a War
Analysing the markets is not the same as trading.
Think of market analysis as a battlefield:
…where analysis is a preparation process…
…and you just scout the battlefield.
Trading is more of an into the breach type process – where you are on the frontline and survival is first on your mind.
Unfortunately, for the majority of traders the outlook is not good – they don’t survive.
Simply negating the tripod of successful trading is enough to turn a prospective trader, into a hopeless one. And don’t think you can live off trading a 10,000 USD account either – unless you enjoy living beneath a highway underpass.
Determining how much money you need to start trading for a living, is critical before you decide to do it.
The biggest and most lethal mistake that traders make when they decide to go full-time, is being undercapitalised. Not having sufficient starting capital is a recipe for disaster.
It always depends on the quality of life you choose to live and you must always have a plan B in case you fail.
So how does an FX trader’s day look?
The retail trader’s job is to carefully monitor the market, the news and price flow. He knows his margin, has a plan, a risk threshold and a goal. He observes the news stream carefully:
…focusing on stories of interest, observing trends, currency strengths and important releases…
…then deciding when to pull the trigger.
But the main positive of being a professional trader, is broad access to tools and info that an amateur trader generally won’t know about it.
Don’t get me wrong though.
Sometimes it’s going to be dull and you kind of struggle with what market to trade. At other times, everything is moving at once and you’re scrambling to keep up with managing all the trades correctly.
“Trading is like trapping.
I set the traps where I expect the best trades will be and if the pips walk into them, the traps are sprung.
If the move is too strong, then the traps automatically let the pips out.
Otherwise, it contains them until I check the traps and collect any pips that are in them.”
The feeling when you have a good trading day is simply amazing and makes up for all the less enjoyable days. I hope this post has cleared up what a trader’s job is. And perhaps given you some insight into the daily life of traders and analysts.
Feel free to comment in the section below
Cheers and safe trading,