I've been noticing for a while that many people ask what a trader is and how to start from scratch in trading. So I thought it would be a good idea to share what I've learned about this topic.

First, let's clarify what a trader is because there's quite a bit of confusion. A trader is basically someone who operates in the financial markets seeking short-term profits using their own resources. It's not the same as an investor, who buys assets to hold them for years. Nor is it a broker, who is the intermediary that facilitates those transactions. The key difference lies in the time horizon and the level of risk you're willing to take.

An effective trader needs to understand well how markets work, have risk tolerance, and be capable of making quick decisions based on data. It doesn't necessarily require a university degree, but practical experience and real market knowledge are essential.

If you want to become a trader from scratch, these are the steps most follow:

First, education. You need to learn about economics, financial markets, technical and fundamental analysis. Read, stay informed about economic news, understand how global events impact prices. Second, choose a regulated broker to open an account with. Many offer demo accounts to practice without risking real money, which is crucial. Third, develop your strategy based on your risk tolerance and goals. Fourth, master both technical analysis (charts, patterns) and fundamental analysis (financial health of companies, economic indicators).

Now, what assets can you trade? You have options: stocks, bonds, commodities like gold or oil, currencies in the Forex market, stock indices, and contracts for difference (CFDs). CFDs are interesting because they allow you to speculate on price movements without owning the asset, with access to leverage and the possibility of short positions.

Then there's the question of what type of trader you are. Several styles exist:

Day traders make multiple transactions within the same day, closing everything before the session ends. It's exciting but requires constant attention and generates many commissions.

Scalpers do even more trades, seeking small but consistent gains. It requires surgical precision and impeccable risk management because small errors multiply.

Momentum traders aim to capture gains by taking advantage of strong trends in one direction. The challenge is correctly identifying the trend and timing entries and exits.

Swing traders hold positions for several days or weeks, taking advantage of price oscillations. Less demanding than day trading but with higher risk due to overnight and weekend exposure.

Technical and fundamental traders base their decisions on chart analysis or economic fundamentals, respectively.

A critical point is risk management. This is where many traders fail. You need to use tools like Stop Loss (automatically closes if you lose a certain amount), Take Profit (secures gains when reaching a target), Trailing Stop (adjusts dynamically), and diversification (don't put everything into a single asset).

Let's look at a practical example. Imagine you're a momentum trader interested in the S&P 500 via CFDs. The Federal Reserve announces an interest rate hike. This is typically negative for stocks. You observe the market reacting and the index starting to fall. You anticipate it will drop further, so you open a short position (sell) on S&P 500 CFDs. You set a Stop Loss above the current price to limit losses if you're wrong, and a Take Profit below to secure gains if you're right. If the index falls to the level you expected, you profit. If it rises to the Stop Loss level, you close and limit losses.

Now, the harsh reality about this. According to academic studies, only 13% of day traders achieve consistent positive profitability over six months. Only 1% keep winning after five years. Nearly 40% give up in the first month, and just 13% continue after three years. These numbers are important to understand that this is not easy.

Additionally, the market is changing. Algorithmic (automated) trading now accounts for between 60-75% of total trading volume in developed markets. This means individual traders are competing against very sophisticated machines.

My final advice: trading has lucrative potential, but it's risky. Never invest more than you're willing to lose entirely. Better to see it as supplementary income while maintaining a stable job. Continuous education is key because markets are constantly evolving.

If you're considering starting, look for a regulated broker that offers solid risk management tools, begin with a demo account to practice without real risk, and be realistic with your expectations. Trading requires discipline, patience, and a mindset of constant learning.