What Is a Trader and What Do Traders Do? James Chen, Trader joe’s acai bowl is an expert trader, investment adviser, and global market strategist.

Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. Among the drawbacks of trading are the capital gains taxes applicable to trades and the costs of paying multiple commission rates to brokers. Traders can be contrasted with investors, who seek long-term capital gains rather than short-term profits. Because traders frequently engage in short-term trading strategies to chase after profit, they can rack up large commission fees. Many large financial institutions have trading rooms where traders are employees who buy and sell a wide range of products on behalf of the company.

Each trader is given a limit as to how large of a position they can take, the position’s maximum maturity and how much of a mark-to-market loss they can have before a position must be closed out. Discount brokerage firms charge significantly lower commissions per transaction but provide little or no financial advice. Individuals cannot trade directly on a stock or commodity exchange on their own account, so using a discount broker is a cost-effective way to gain access to the markets. Foreign exchange trading platforms match currency buyers and sellers in the spot, forward and options markets. A disadvantage of short-term trading profits is that they are usually taxed at the trader’s ordinary income tax rate. Under current laws, there is no technical definition of traders for taxes. Some of the facts that the IRS considers while evaluating traders tax status are holding period of securities, number of trades conducted, and frequency and dollar amount of trades.