The trader seeks to generate gains on purchase and sale transactions of securities, while minimizing risk. His purpose is to manage the risk involved in taking a position on the market.
If he anticipates an increase in the price of securities held, it determines an exit point, to generate a profit. If he anticipates a decline, he must sell quickly enough to get rid of the risk. However, too rapid unwinding of a position can cause a significant drop in the share price. The trader may be brought after an analysis of the liquidity, to split its sale.
If the trader holds his position over several days, it should be funded. Traders are generally specialized in segments of the financial market.
Swing traders hold heavy positions for several weeks. With a solid financial base, these speculators are able to absorb the adverse short-term fluctuations, including paying margin calls and take a position until the end.
According to the Canadian psychologist Robert Hare, 10% of traders can be classified as psychopaths.
Selection of securities (equity long short) involves taking positions both long (buy) and short (sell) on selected actions in the same sector or in the same geographical area, with a rather long resulting net position (long bias ), or rather selling (short bias), or neutral (market neutral).
High Frequency Statistical arbitrage: is to take positions based on a standard of behavior in relation to history, i. e. betting on a reversion to the mean. This may be to take advantage of a decrease or an increase in the correlation between securities, industries or markets, when it seems justified from a fundamental point of view. This behavior is stable observations, eg take advantage of lower correlation between BNP and GLE of buying one and selling the other.
Quantitative Trading: involves taking positions based on predictions made by a quantitative model, i. e. analysis courses and information in order to detect market signals.
Macro / opportunistic (global macro) tries to take advantage of changes in the global economy, particularly changes in interest rates due to the economic policies of governments. It uses instruments reflecting the global economic situation currencies, indices, yield curves, commodity.
Income arbitrage rate (fixed income arbitrage) seeks to profit from the movements of the yield curve. It uses vehicles such as government securities, futures and swaps.
Special situations (event driven): the manager seeks opportunities generated by events occurring in the lives of companies: subsidiaries, mergers, or difficulties (distressed securities)
Arbitration on mergers and acquisitions (merger arbitrage) the possibility of arbitration in such situations (OPA, OPE) results from the difference between the advertised price by the purchaser and the price at which the target is trading on the market. The merger arb is a subset of the event driven.
Emerging markets (emerging markets): investing in developing markets. Very risky strategy as hedging instruments are not always available on this market. In addition, the manager is faced with liquidity risk, emerging markets are often illiquid.
Collaborative analysis (Collaborative System) innovative approach of using algorithms to relate and use the best strategies or choice of professional traders and analysts (eg Marshall Wace) or amateur (eg UHedgeFund).