Market Players

Overview

Players

• Speculators : are traders who trade because of an assessment of where an assets price will likely be in the future, that is, as a means of making speculative returns.
• Market Makers - are traders who provide liquidity to the market by quoting traders a buy and a sell price and making a market in the given asset. Market makers make their money from the bid/ask spread they charge their clients.
• Noise Traders - are traders who are trading for reasons other than an assessment of the asset value.

Speculators

Value Traders

Value traders are traders who make an informed assessment of an assets "true" value before placing a trade. These traders tend to work for organizations who manage large portfolios and have the resources to be able to collect and analyze the relevant information.

Value traders often trade large blocks, due to the size of their portfolios. This means that their trading can cause sizable changes in the price of asset. Because of this market impact, value traders tend to enter a market only when the price has deviated from their calculated value by a certain threshold.

For a dmonstration of the supply and demand dynamics among value traders, see Supply and Demand. Investors

Investors are a class of speculators who invest in assets with the expectation that the assets value will rise over time. Investors are typically passive market players who invest on a regular basis and invest in assets on the basis of an expected return, usually through the presence of a risk premium. They do not tend to do extensive analysis of an assets value. Front Runners

are traders who do not make trades based on judgements of value, but rather they buy assets that they suspect (or know) another trader is about to buy. That is, they front run the second traders purchase. THis allows them to sell the assets they just bought at a slightly higher price.

High frequency trading firms often engage in a form of front-running. Manipulators

manipulators enter the market in order to manipulate the price of an asset. For instance, if a manipulator suspects that other traders have a large sell at a price marginally higher than the current price, that manipulator may try to buy a small amount of the asset in order to push it over the sell order price and to trigger the sale. If the sale is large enough, the price will decline by a substantial amount, and the manipulator is able to buy at the reduced price.

Un-Informed Trader

A un-informed trader is a trader that is trading for reasons that have little to do with the asset valuation. This may not mean that the trader is un-informed in the strict sense of the word, rather, they are trading for reasons other than an informed opinion about the assets valuation.

A typical example would be a trader who needs to raise liquidity from their portfolio. A pension fund may need to make payments to its pensioners and will therefore sell some of its assets. Such a sale may move the price of the underlying asset, but for reasons that are not related to the assets fundamental value.

Non-skilled retail traders may also be viewed as noise traders

Market Makers