How many types of trading are there?

Trading is an activity which consists in the purchase and sale of financial instruments in order to make a profit. Seen in this way, we can safely say that the trader is nothing more than a trader of financial products and instruments whose purpose is to make profit on the price difference between buying and selling.

Nothing complex if seen from this point of view, in reality there is a problem regarding the time in which the trader will be able to carry out his trading activity as it has been possible to trade through the early 2000s electronic negotiation, consequently the volumes traded and the sales are much faster than a few years before.

This important change has led to the birth of different types of traders, precisely because of this enormous change on a technological basis which has led to a greater speed of exchanges and consequently to greater operating spaces in terms of time. Now let’s see together how many types of trading, mainly discretionary, exist.

The trader who scalps

This term originates from the early 2000s when the first trader who operated on the new terminals with on-sight trading books could take advantage of some inefficiencies that allowed the trader in question to open and close a trade transaction within times that went below one minute, in some cases the operation could last even just one second. The scalper is therefore the one who exploits price inefficiencies due to the speed of trades and new incoming volumes within the trading platforms provided by brokers.

This type of trading has brought to light a way of doing absolutely innovative trading, in line with the technological progress of the time but which, at least in this historical period, is a very difficult type of trading. But be careful, we must specify this type of trading well: scalping not only refers to the time and duration of the trade but also to the amplitude of the movement. Typically the moves scalpers exploited were very small price moves, minimal price drifts, and certainly not large, lightning-fast price moves.

This specification was necessary and fundamental. This type of trading is now almost entirely obsolete and has been replaced in most cases by what are defined as HFT, High Frequency Trading systems, i.e. high-frequency trading. In practice, the work of the scalper has been replaced by an automated work with a hardware component that requires constant maintenance and updating beyond the reach of a novice private trader. We are talking about hardware systems with exorbitantly expensive processors directly connected to the trading systems of the reference stock exchange through direct access to the market, in practice an efficient extreme of the "human" scalper.

Intraday or Day-Trading

One of the most frequent ways of trading is precisely that of trading intraday. Scalpers are replaced over time by automated systems and traders are in a sense forced to choose whether to continue trading or leave the hatchet in favor of the new Hft systems. Obviously, if the trader does not have more space in a certain "time frame" of operations, he will adapt to what comes closest to what is in line with his way of managing risk.

Intraday trading therefore consists of negotiation of financial instruments within the trading day and mainly involves closing all existing positions during the day. An intraday trader therefore finds himself at the end of the day without any market exposure and consequently every day is always new at an operational level. The intraday trader can make operations that can last seconds, minutes and hours, the important thing is that they are closed within the trading day. This type of trading requires a fairly high degree of specialization as dynamics that require a deep knowledge of market movements on a daily level are exploited.

Multi-Day Trading

Multi-day trading is trading that usually does not provide a precise time frame in which the trader can close his positions. The multi-day trader has an operational perspective where he goes to take advantage of larger movements without running the risk of the intraday trader, therefore he usually has an operational approach that focuses mainly on dynamics and long-term trends.

The operational approach is very technical as this type of trading needs confirmation on long-term charts and very careful risk management as market exposure is more prolonged over time. To obviate this time risk there is certainly the operational risk component which will certainly be managed differently than the other two traders described above.

The dose of risk is such that an important market oscillation has little impact on the final result, therefore the multiday trader will have to exploit important movements in terms of oscillation in order to have relevant performances. While the intraday trader is more concentrated on the movements and technical dynamics that drive the markets day by day, the multiday trader is mainly concentrated on the long-term trends, completely ignoring all the factors that an intraday trader instead sees as absolutely fundamental for his operation. As you can see, it takes only 24 hours difference for there to be three different types of trading.

Obviously these were the types of trading in terms of time and there are even more variations as regards the types of traders, i.e. the methods of trading and speculating on the markets divided by type of instrument and for special needs such as trading on energy which provides for the buying and selling of financial instruments linked to the energy world for the risk management of a specific company.

Original article published on Money.it Italy 2022-12-01 08:57:00. Original title: Quanti tipi di trading esistono?