What is a trader? Definition and examples
A trader is somebody, a firm, or any entity that buys and sells financial instruments. The term may also refer to a person who buys and sells products, such as fruit, vegetables, sugar, or wool. For example, somebody who buys and sells cattle is a cattle trader.
Trade (noun) – To Trade (verb)
The term comes from the noun trade and verb to trade. Trade refers to the action of purchasing and selling products between individuals, companies, other organizations, and even countries.
When trade occurs between countries, we call it international trade. We could say that somebody who imports and/or exports is an international trader.
The verb to trade means to buy and sell products or services at either commercial, individual, or national and international levels.
In the world of finance, a trader buys and sells financial instruments. Any monetary contract between two parties that we can create, trade, or modify is a financial instrument.
Shares or stocks, for example, which show evidence of ownership of part of a company, are financial instruments. So are bonds, futures, checks (UK: cheques), derivatives, options, and bills of exchange.
A forex trader buys and sells currencies, such as dollars, pounds, euros, yen, yuan, and Swiss francs. The term forex stands for foreign exchange.
Wikipedia says the following about the term:
“Traders are either professionals (institutional) working in a financial institution or corporations.”
“They buy and sell financial instruments traded in the stock markets, derivatives markets and commodity markets, comprising the stock exchanges, derivatives exchanges, and the commodities exchanges.”
Etymology is the study of the origin of words and how their meanings have evolved over time.
The term first emerged in the English language in the 1580s with the meaning “dealer, trafficker, one engaged in commerce.”
If came from the verb to trade, which appeared in the English language in the 1540s. At the time, to trade meant “to tread a path.” In the early 1600s, it also meant “to occupy oneself (in something.”
It wasn’t until 1793 that the verb acquired the meaning “to barter,” which is more or less how we interpret it today.
Owner of a market stall
Market traders sell goods from a stall in a street market. They might sell fruit, vegetables, clothing, electrical goods, bread, or cheese and processed meats.
Somebody who has a stall in a street market and repairs watches or mobile phones is also a market trader.
Some retailers say that a good and relatively cheap way to try out a business idea is with a market stall. According to startups.co.uk:
“Starting a market stall is one of the most popular routes into the permanent retail sector, and it’s not difficult to understand why.”
“Not only is market trading a great way to test your business’ potential in a high-footfall hotspot, it’s also cheap, with relatively low start-up costs.” (Footfall refers to visitor traffic volumes)
Sole traders are people who own 100% of their business, which is not a limited company. They can keep all their profits (after tax). However, they are liable for any losses.
If their business goes bankrupt, they might have to sell their home and use their savings to pay off business debts.
This does not happen in a limited company. The owners of a limited company, i.e., its shareholders, are only liable for the money they spent on their shares if the company goes bust.