What is a desktop merchant?
A desktop trader is a professional in the financial industry who buys and sells assets such as stocks or bonds on behalf of clients. Desktop merchants are not allowed to transact on behalf of the companies that employ them.
Desk traders are customer service professionals who work with investment analysts. They must be registered with the relevant securities regulators, including the Securities and Exchange Commission.
A desk trader is an employee of a bank or brokerage that processes buy and sell orders for the company’s clients.
Understanding the desktop merchant
If you’ve ever telephoned a brokerage firm to order a stock purchase, you’ve probably spoken to a desktop trader who took the order and shipped it to the market. Most also have their own regular customer lists.
Desktop traders look for potential opportunities in the markets by analyzing financial and economic data. Sometimes they have to make extremely quick decisions about when to buy and sell stocks or bonds based on current price fluctuations in the market.
Desktop traders aim to make significant profits for their clients with minimal risk. They can specialize in stocks, bonds, options or in the currency markets (Forex).
The difference between a trader and an investor
Desktop traders are professionals employed in the investment industry, but traders, in general, can be individual investors. The word encompasses any investor looking for short-term gains rather than long-term goals.
A trader analyzes the market minute by minute, looking for opportunities in price fluctuations. Traders focus on market trends and emotional reactions.
An investor analyzes the fundamentals of the company to identify stocks that have long-term growth potential. Investors focus on the stocks of well-managed companies that are gaining market share.
Types of merchants
Traders, professional or not, tend to stick to the market niches they are most comfortable with.
Fixed income trader
A fixed income trader buys and sells corporate and government bonds and other debt instruments, such as US Treasuries and short-term fixed rate notes.
Your clients can be retail or institutional investors. Fixed income traders work for banks or stock brokers.
A noise trader makes short-term buy and sell decisions based on current economic trends and the news of the day.
These traders do not use fundamental analysis to create a trading strategy. They react in the moment.
Noise traders are generally frowned upon by others in the industry and are to blame for spikes in trading volume.
Sentiment traders are similar to noise traders, but their attitudes are different. Noise traders want to stick with trends. Sentiment traders want to exploit trends.
A sentiment trader tries to identify the stocks that are currently moving with the market and buy them long enough to make a quick profit.
Unlike a noise trader, a sentiment trader will use fundamental analysis to aid decision making.
An arbitrage trader buys and sells assets simultaneously in two or more markets to profit from momentary differences in their prices.
This type of trade has become increasingly difficult, as technological advances have made it difficult to find and exploit these short-lived price differences.