In Social Trading (or, as it was called at the beginning, Mirror or Copy Trading, discover the differences here) one of the main figures is the trader, also called Signal Provider, ie the person who provides the trading signals that are copied by the investors who follow him, called precisely followers.
A Signal Providers is nothing more than a trader who, in person or via an automated trading systems called Expert Advisor (EA), operates on the markets.
In this post we will see the various types of forex traders (or the forex trading types).
What is a trader?
A trader is any person who operates on the markets, for working, for passion or for living.
We can distinguish the types of forex traders in many ways. Many of the distinctions we will see are determined by the character of the trader, as well as the course of study and interests that led the person to becoming one.
Amount of underlyings on which they operate
There are traders who operate in many markets, dealing with many underlyings. Usually these traders, to follow them all, work with a long time horizon, in which the daily movements of the individual underlying will not affect particularly a singular transactions.
It’s certainly a very relaxed trading, and the trader has time to range between various markets and underlyings, and calmly decide when overweighting his investments and when underweighting them. Usually this type of trader has almost the connotation of investor.
Other traders instead prefer a more exclusive operation, choosing just a few markets, many times just one, and with few underlyings, very often only one. This makes them more similar to speculators, who invest and earn on every slightest price deviation of that single underlying.
The categories in this case are three.
Trend Follower: they have very long time horizons, they enter the market trying to guess very important movements of the underlying (not the individual daily fluctuations), which obviously don’t occur every day, and for this reason, they range between many markets and many underlyings, in order to increase the number of investment opportunities. The average duration of their operation could be weeks, months, even years in some cases.
Swing Trader: for swing trading is meant the type of trading that seeks to gain from those decided and sudden market movements, that can last one or several days, and that are called precisely swing. Usually the operations last more than one day but less than a week, but there can be exceptions of course.
Day traders: these are traders who try to gain from the daily price movements of the underlying they follow regularly. Their operations are almost always closed by the end of the day, rarely the next day. Given the time horizon of their operations, they usually prefer more underlyings, but remaining confined within a single general market, not to dissipate their energies; for example two, three or four pair of the Forex market.
A sub-category of the day traders is the Scalper. He’s definitely the most speculative and frantic figure of the market. These are traders who operate with very consistent leverage and very short timescales, in the order of minutes or seconds per transaction. Their goal is to close in profit a lot transactions with small gains during the course of the day.
Type of analysis
Another thing that distinguishes traders is the type of study they have done before deciding whether to open a position in the market.
The two main categories in this case are:
– Traders who rely on fundamental analysis. They are usually the more long-term investors, who dedicate themselves to the study of fundamental, theoretic and global nature information.
Depending on the underlying asset, the relevant information may be different: We range from single company news, to forecasts on commodities, to countries economic conditions, to macro-economic analysis and monetary and political situation, rather than to the analysis of a segment of the market and the company’s competitors, and with regard to currencies, in particular to the decisions of central banks.
– Traders who entrust their operational decisions on technical analysis.
Usually swing, day traders and scalpers use a market approach of this kind (but also in the long term is much used). These traders claim that any news, event, geopolitical situation (and so on and so forth) is already showed, ie represented, in the price.
They think the price already includes and shows everything. According to these theories, all that remains to do is read the price, analyze the behavior and configurations with technical tools, and act accordingly.
The common denominator of every trader
In any case, distinctions aside, the lowest common denominator that brings together all the traders is that they are people who do their studies and their analysis usually in front of one or more PC monitors , dedicating their workday to this activity, which can be more or less longer compared to a traditional job.
With the evolution of computer science, some of them have managed to bring their decision-making patterns within a complex system of computing rules, creating automated trading systems, or Expert Advisor, which, thanks to a minimum or no supervision at all, operate on the market on behalf of the trader.