The New Generation of Traders. What Style Suits You?
23 July 2016
Since the first paper stock floated in 1602, people have traded the financial markets. Exchanges have moved from handshakes to digital, with ever refined mathematics and technology supporting progress. Today, trading is no longer narrowed to the elite few and anyone with a computer, tablet or smartphone can trade.
Now, online communities are beginning to emerge, with both professional and amateur experts leading discussion and sharing their wisdom. It’s no surprise that biggest uptake of new traders to the social trading world were millennials around Brexit.
How are these online communities evolving? Well, if you look at the behaviour of the users, you can see some are risk takers; other wants to play it safe. Some are great at playing the market for the short term; others prefer to be in it for the long term. Naturally, there are risks and benefits associated with each.
Looking at the traders on the eToro network, we’ve identified five distinct trader personalities:
- The Specialist: the specialist traders focus in just one asset and develop a detailed knowledge of how it performs. Often referred to as “single instrument traders”, this type of trader may work within a specific industry, in which they invest or take a great deal of time to understand the markets in which they buy stock.
- The Full Market Trader: these are traders who look for opportunities everywhere and invest on any asset that they think will be profitable. Whilst non-focused, this approach has been known to work for many and has resulted in significant profits gains, if done correctly.
- The Indexer: indices can offer full market exposure and potentially allow investors to benefit from the performance of a wide range of companies through a single trade. In essence, this is when you would make a prediction based on a sector, or wider industry, rather than suggesting one company might gain or lose.
- The Day Trader: day traders make fast and decisive investments in search of quick profits. Their trades could be open for as little as a few minutes, or as long as a few hours.
- The Long Term Trader: Warren Buffet is the perfect example of a long term investor. The Warren Buffets generally focus on stocks and indices and keep their trades open for long periods of time – almost appearing to ‘forget about their investments’. They’re willing to absorb some losses along the way, in the expectation that they will see long term profits.
Whilst there is no golden rule for anyone who wants to dip their toe in trading, it is worth picking one of these styles and sticking with it.
But what if you don’t have the time to fully commit to a strategy? A huge benefit of social trading is the presence of the copy function. By copying other traders on the site, you mirror their investment behaviour, making profits proportional to theirs. If you analyse other traders you can identify whose strategy most chimes with yours, and let them do the work.
Whatever you choose, make sure do your homework in advance to negate risk and best identify opportunities in the market. Stick with this and you’ll shine, no matter what your style.
Yoni Saad is the Senior Investment Manager at eToro, the world’s leading social trading platform. The program allows smart investor’s to earn up to 2% annually on assets under management through the Popular Investors programme.
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