For many wannabe traders, getting their degree in finance is just the first step. The second
involves them finding the right field, the right sector, and most importantly: The right type of
trading career.
Trading is an expansive career that has many avenues for both beginners and experienced
traders to enter into.
In this blog, we’ll look at the different types of trading careers that a financial graduate, or
someone with a keen interest in trading can pursue.
What is trading?
Trading refers to the buying and selling of financial securities like bonds, stocks, and other
financial instruments.
The trade of these instruments plays a vital role in the global economy because it creates
liquidity in the financial market.
For investment banks, hedge funds, commodities companies, and other financial institutions it is
also a primary way of raising profits.
To successfully make trades, traders usually must have a keen interest or passion for
mathematics, economics, and science as it uses a combination of extensive research, probability
and scient.
What are the Types of Trading?
Before we can even address the types of trading career, there are three overall categories
into which the types of trading careers fall into. These are:
#1 – Market Making
Market making trades are trades whereby a trader acts as a middleman. A Market-Making
the trader will buy an instrument from a buyer, and then sell the asset, instrument or product to a
seller at a higher price than that of which he bought it. This makes his profit in the deal.
This profit is therefore called marketing making. Successful market-making traders must have
good observation and probability skills as they will need to watch both sides of the market, and
make the trade at the precise time. Wait too late and either the price of the asset will go up, or
the selling price will dip down.
#2 – Agency Trading
Agency trading is simply a type of trading where trades are performed on behalf of a client.
Agency traders will have a list of clients who will contact the trader to buy assets for them at a
specified amount.
Agency traders will usually make a profit by charging clients fees to carry out these trades,
which makes it a more restrictive way of trading when compared to other types.
#3 – Proprietary Trading
Proprietary trading is seen as the easiest type of trading for new traders to enter into.
Proprietary traders belong to proprietary trading firms and trade on behalf of banks and other
financial institutions, meaning they do not risk their own money.
If a proprietary trader makes a profit, they keep 100% of it which also makes proprietary trading
slightly quicker to advance in than other trading forms. Most commonly prop traders work
according to the theories and assumptions about the working of the market and open positions
according to it.
The 5 Types of Trading Careers
#1 – Equities Trader
Equity traders trade on stocks and shares that are publicly listed. An equity trader will invest in
the equity capital markets, and exchange money for company stocks as opposed to bonds.
Equity traders use fundamental analysis to carry out their work, which is the process of
evaluating the financial position of a company to determine whether it is a profitable investment.
Therefore traders should be able to think logically, analytically, and decisively.
Equity trading offers potentially higher returns on investment (ROI) than other securities, but the
potentially higher return is offset by much greater risk as the equity market is volatile.
This is part of why equity traders must have sound research and analytical skills because they
must make the best decision when it comes to investing.
#2 – Fixed Income Trader
Fixed income traders trade on instruments such as bonds, fixed income assets, and government
securities.
Fixed-income assets are assets that provide fixed returns over a specific period of time and are
categorized by government, mortgage, municipal and corporate assets.
Fixed income trading is seen as riskier than Equity Trading because previously Fixed
Income has incorporated exotic financial instruments like those of collateralized debt obligations
– a primary reason behind the 2008 financial crisis.
Traders wishing to become fixed income traders must have experience of working with bonds or
corporate bonds and most trading firms will require fixed income traders to have a bachelor
degrees and actionable work experience.
Most sought after skills include those of communication, technical analysis, a cool head under
pressure, and the ability to efficiently juggle a multitude of tasks at the same time.
#3 – Forex Trader
The most common trading type of them all, and certainly one that has gained popularity recently
with the rise of Forex Influencers on social media platforms.
Forex Traders trading predominantly on currency movements and fluctuations. They will trade
across the global markets, including USD, EUR, and INR.
Due to their global trading, their trading calls depend entirely on the country’s economic
performance. This includes the macroeconomic outlook and the probability of how well the
currency will perform over time.
Due to the global market, forex trading can be lucrative with the potential to secure big profits.
Forex traders therefore should have skills such as flexibility, adaptability, perseverance, and a
love to learn as ever-changing global markets will present new problems to conquer.
In addition, forex traders must be able to safely take risks, have good capital management
techniques, and possess a solid trading plan.
#4 – Commodities Trader
Commodity Traders trade on commodities such as crude oil, copper, gold, metal, and
agricultural commodities such as wheat and corn.
For commodities traders, their daily buying and selling is driven by anticipated economic trends
or other arbitrage opportunities.
Most commodity trading involves purchasing and selling instruments in futures contracts which
means trades can be exited before the maturity date.
Overall, commodity traders should have strong probability skills as well as being able to act
decisively and quickly.
In order to make a profit, commodity traders need to be quick to react to changing
developments. A slow reaction could cause a significant loss if the market dips in the wrong
direction just as quickly.
#5 – Derivatives Trader
Derivatives Traders trade with options and futures. Traders can make leveraged bets, as well as
lower capital requirements to make Derivative trading the least risky of the trading careers.
Derivatives are financial securities that have value reliant upon, or derived from, an underlying
asset. This serves a contract between parties, whilst the derivative gains its price from any
fluctuations that occur in the attached asset.
Most commonly, underlying assets include bonds, commodities, currencies, interest rates,
market indexes and stocks.
Derivative trading has many pluses, including locked in prices, significantly lesser risk, the ability
to leverage and the ability to diversify a portfolio.
However the derivatives themselves can be hard to value, complex to understand and sensitive
to fluctuations between supply and demand.
Derivative traders must be able to display patience, thorough understanding of the markets, and
good analytical and evaluative skills to be able to make the correct investment choices.