Types of Market Participants
Market participants use different approaches based on skills, time and risk tolerance to make money in the markets.
Broadly, there are traders which include scalpers, Day traders and swing traders, who focus on short term fluctuations and then there are investors who bet on long term growth of their stocks.
Different types of Market Participants have been covered in detail:
Scalping
First in the list of types of Market Participants is Scalpers. Scalping is very short term trading wherein scalpers try to profit from volatility ranging from seconds to a few minutes. Timeframe they use can vary from 1-3 mins where they stay in trade for a few minutes.
So, they enter and exit quickly to make small profits frequently over the trading day.
Characteristics:
- Time frame used in 1-3 mins
- Multiple trades during a single trading day, which add up to trading costs.
- Position sizing is big to make big profits from small movements which are often leveraged.
- Demands experience and fast execution of trades.
- It is highly stressful and requires quick decision making.
- Not ideal for beginners due to speed and risk.
Day trading
This is also a short term trading where the timeframe used is 5 to 15 mins.
Characteristics:
- A day trader usually takes not more than 3-4 trades per day as the TF is considerably larger than scalping.
- It also demands high skills as technical analysis works better on larger TFs.
- Leverage is also used here.
- Needs active involvement during the trade and constant watch on prices.
- It is also stressful and requires emotional stability.
Buy Today Sell Tomorrow (BTST)
In this, positions are made on day one and closed on very next day usually at the start of trading day. This type of trading is done by traders to take advantage of overnight price movements.
Characteristics:
- TF used is generally 15 min – 1 hr.
- Leveraged is generally not used as it is not allowed for overnight positions.
- Comparatively less risky.
- Traders generally take such positions when there is some news expected the next day like companies’ results.
Swing Trading
In swing trading, positions are held from a few days up to a few weeks.
Characteristics:
- Daily TF is used as primary.
- It is comparatively a safer trading method as technical analysis works well.
- Leverage may be present.
- It does not involve active involvement but one needs to keep passive check. For this reason, it is popular among the working class.
- Since it involves passive involvement, it causes less anxiety and emotional imbalance which increases chances of winning.
- As not many orders are punched weekly, trading costs are negligible.
- It exposes traders to uncertainty of news as positions are carried overnight.
- For beginners, it is always advisable to start their trading journey from swing.
Investing
Investing involves buying companies for a long term which extend from months to multi years with expectations of growth of companies over time.
Characteristics:
- TF for investing is weekly and monthly.
- Considered safest as technical analysis is easy to follow.
- Also considered safer in the sense that no leverage is present.
- Objective of investing is to create wealth over time.
- Fundamental analysis is used along with technical.
- Once invested, active tracking of positions is not required.
Key Takeaways
- Type of Market Participants include – Scalpers, Day traders and Swing traders, Investors.
- Short term trading demands high skills.
- Technical analysis works better on larger TFs.
- Scalping is the hardest while swing trading is comparatively easier.
- Overnight carrying of position exposes traders to uncertain news.
- Investing is the safest with vision for years which do not include frequent buying and selling.
