Basics of Stock Market

In short, there are three different types of investors or traders on stock markets. This article will look at the three different types and will act as a guide for the reader to determine in which category he or she will resort.

Individual Investors

Individual investors generally invest in stock of corporations they know and believe in. The intention of these investors generally is to hold on to these stocks for long periods of time, generally a year and longer. These investors ignore the short-term and day-to-day price fluctuations and believe that the value of the shares will increase over long periods of time.

One such known investor is Warren Buffet, co-founder of Microsoft, who believes in buying shares and holding onto them, never selling it. He became a billionaire due to this ‘buy and hold’ strategy.

Short-Term Traders

The short-term trader generally has no interest in the long-term prospects of a corporation and the intention is to make money from short-term movements in the stock markets. These traders will generally buy a stock and sell it within minutes, hours or days in order to generate profit from short-term increases in the price of the stock.

One such trader is the well-known ‘Day Trader’, where the trader will buy a stock at $5. The trader will attempt to sell the stock at $5.10 or even $5.50 the same day as the price increase. Where the price decrease the trader will attempt to sell the stock and suffer a small loss as apposed to hanging on to it. By the end of the day all trades will have been converted to hard cash.

Professional Traders

Professional traders are generally investing the funds of other people on stock markets. These traders act on instructions from clients and they are more known as brokers.

These traders often include individuals employed by Wall Street brokerages and stock exchanges, but they also include institutional traders such as pension funds, banks and mutual fund companies.