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Market trader definition

Started by Admin, Oct 09, 2023, 03:30 PM

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Topic keywords [SEO] markettradercurrenciesInvestor


The emergence of financial markets led to the emergence of a new profession. A market trader definition can be expressed as a participant in the financial market who makes sales transactions for the sole purpose of gaining profit. They sell or buy securities, currencies, bonds and shares either using their own funds or being an official representative of their client (investor). Traders need to carefully analyze the incoming information as well as to be able to react to the market changes in time. In addition to analytical decision-making, discipline is also one of the important factors in the success of transactions. Not everyone can be constantly under such psychological press that follows traders during the course of the day and even beyond working hours. If you do not take any measures to protect yourself from the emotional component in trading, it can cost you money and even health. A simple way to avoid this is to use a mechanical trading system.

What you can do as part of your trading educational process is to learn the terminology. All of the terms are seemingly separate but in reality, everything even slightly related to the market is interconnected so you should know what everything means. For example, a liquid market definition states that it is a market in which assets can be converted at any time without being accompanied by a significant price fluctuation and, therefore, leads to a minimum reduction in their value. In other words, a liquid market has a decent degree of stability and low spreads between the buying and selling prices. Typically, this type of market causes a high volume of trading because a lot of buyers and sellers are ready and willing to trade at any time during the trading hours.

Also, liquid markets usually contain a large number of liquid assets, i.e. when an asset can be quickly executed with little or no loss in value. In most cases, the more easily an asset may be converted into cash, the more liquid it is. Thus, money is the most liquid type of asset; shares, securities, government bonds and large-cap stocks are also mostly treated by investors as liquid assets. Trading illiquid assets is usually more difficult. For example, real estate investments are often though of as illiquid assets because they cannot be quickly bought or sold. A large block of shares is another instance of an illiquid asset because the very fact of sale would most likely affect its market value.

In addition to the previous terms, a market deficit can be defined as a situation when demand exceeds supply in quantity at a given price level. If the trend continues, the situation can become problematic and consumers will suffer from a shortage of the specified commodity, the price for it will grow. Potentially, this situation can lead to the "overproduction crisis" if the rush of demand for goods disappears, which will lead to a drop in value and a reduction in the product assortment in the market. Could there be a permanent deficit in a market economy? The answer is no because of how the system is built. Although it can remain for a long time provided the price increase is limited by certain factors such as state regulation or the lack of opportunities to increase the production. Incidentally, if there is a persistent market deficit, it means that the enterprises do not have incentives to correct the situation or the state does not want to help them. In this case, one can observe a decline in the standard of living since people can no longer fully satisfy their needs.

Another thing to mention is a fairly broad concept in the financial world describing a critical level of losses at which the broker should notify the trader – which is how you would define margin call. If the value of shares falls sharply and the amount of funds falls below this value, the broker must warn the client who at this point, has two options. The first is to respond to margin call and put in additional funds to secure the leverage. The second is to refuse to make any decisions hoping that the share or currency price will increase in the near future and will not reach the stop out.

Normally, margin call is caused by an unfavorable situation in the market; for example, a decrease in the value of an asset purchased on borrowed funds or its growth in case the trader holds a short position. Another reason of margin call is an increase in the minimum acceptable level of margin, which is computed by the special formula on the exchange. Among other factors that may suddenly lead to a forced closure are increased volatility and changes in legislation (for example, a complete ban on short positions or restrictions on the use of the broker's funds).

Beginners see exchange trading as an extremely complex and incomprehensible process that is hard to get into without special qualifications. Obviously, having a financial education is a huge plus which can become one of the important foundations for successful trading; but if you do not have one, it does not mean that you have no chance to succeed. It is enough to have an analytical mind, study the main factors that affect exchange rates, learn the basics of trading and various definitions as well as know the basics of technical and fundamental analysis. It is not difficult to acquire the necessary knowledge these days: virtually all large brokerage companies offer their clients training materials, courses and seminars and general information on this subject can always be found online.