Trading
Trading vs Investment: Trading exploits short-term price volatility through technical catalysts (liquidity, momentum, order flow), while investing hinges on long-term intrinsic value realization via fundamental drivers (cash flows, competitive advantages, discount rates).
Trading arbitrages mispricings in market microstructure (bid-ask spreads, gamma squeezes), whereas investing exploits mispricings in business valuation (DCF gaps, margin expansion).
| Category | Role | Description | Time Horizon |
|---|---|---|---|
| By Style & Time Horizon | High-Frequency Trader (HFT) | Uses algorithms for ultra-fast trades (milliseconds). | Milliseconds – Seconds |
| Scalper | Takes small profits from very short-term trades. | Seconds – Minutes | |
| Day Trader | Opens/closes positions within the same day. | Minutes – Hours | |
| Swing Trader | Holds positions for days to weeks, capitalizing on short-term trends. | Days – Weeks | |
| Position Trader | Long-term trades based on fundamentals/macro trends. | Weeks – Years | |
| By Strategy | Arbitrage Trader | Exploits price discrepancies (statistical, spatial, merger arbitrage). | Varies |
| Market Maker | Provides liquidity by quoting bid/ask prices. | Seconds – Hours | |
| Algorithmic Trader | Uses automated systems (VWAP, TWAP, execution algos). | Milliseconds – Days | |
| Quantitative Trader | Uses mathematical models (statistical arbitrage, ML). | Days – Months | |
| News/Event Trader | Trades based on economic data, earnings, or geopolitical events. | Minutes – Days | |
| Technical Trader | Relies on charts, patterns, and indicators (RSI, moving averages). | Hours – Weeks | |
| Fundamental Trader | Bases trades on financial statements, valuations, and macro trends. | Weeks – Years | |
| By Institutional Role | Proprietary Trader (Prop) | Trades firm’s capital (not client funds). | Varies |
| Hedge Fund Trader | Manages portfolios (long/short, global macro). | Days – Years | |
| Asset Management Trader | Executes trades for mutual/pension funds (large-scale execution). | Days – Weeks | |
| Sell-Side Trader | Executes client orders (investment banks, brokers). | Minutes – Days | |
| Buy-Side Trader | Manages investments for institutions (hedge funds, asset managers). | Days – Years | |
| Risk Arbitrage Trader | Specializes in M&A deals, distressed assets. | Weeks – Months | |
| By Market Focus | Equity Trader | Trades stocks. | Varies |
| FX Trader | Trades currencies (Forex). | Varies | |
| Fixed Income Trader | Trades bonds, interest rate products. | Varies | |
| Commodity Trader | Trades oil, gold, agricultural products. | Varies | |
| Crypto Trader | Trades Bitcoin, altcoins. | Varies | |
| Derivatives Trader | Trades options, futures, swaps. | Varies | |
| By Regulatory Role | Compliance Trader | Ensures adherence to trading regulations. | N/A |
| Execution-Only Trader | No discretion; follows client/firm orders. | N/A |