In order to participate effectively in the stock market and other financial markets, we need to understand the types of participants involved in the market. They are broadly three types of participants in the market, which are based on how long participants typically hold on to an asset.

Short term market participants:

Generally own assets from a few seconds to a day. They are private day traders, market maker or scalpers, proprietary or institutional traders, short term arbitrageurs, information or events traders, outright gamblers etc. There are characterised by fast acting and high turnover of assets. The advantages of this type of market participation, is that you get quick feedback from the market, and in most cases capital are not tied for a long period, which means there can be used in other market opportunities. In addition, you are not faced with overnight risk, as the transactions are generally closed before the end of the trading day.

The disadvantages are the amount of trading commission generated by this type of activity, the risk of getting sucked in by the market into always doing something, which may lead to overtrading, and in most instances not allowing for enough time to making positive returns on market positions if strategy is based on trade price direction.

The ideal strategy for this time range are those that have a non-directional slant, i.e. strategies that make money based on receiving spreads, like market markers, or one that corrects short-term price relationship discrepancies between related securities i.e. arbitrageurs strategies.

Medium Term market participants:

These are market participants that general own assets from between a day to a year. They are short term swing momentum traders, position traders, spread traders, growth investors etc. They are characterised by medium to slow acting and medium to slow turnover of assets. The advantages of this type of market participation, is that you give the trades enough time to confirm your opinions. The commission fees are a lot less than frequent shorter term trades. The disadvantages are the overnight risk inherent in holding these types of positions, and the larger risk incurred in holding positions for longer time period.

Long Term market participants:

These are market participants that general own assets for more than a year. There are interested in the value appreciation and income generated from assets. They are value investors, income seeking investors, etc. They are characterised by slow acting and low turnover of assets. The advantages and disadvantages are similar to those of the medium term participants.

As a market participant, you will be operating within a specific type time frame, or may prefer to sit within a hybrid position, in order to take advantage of certain market time frame characteristics. You also will be using one or more strategies to approach the market. As an example my preference is the medium to longer term trades and investment. The reason for my choice is based on lifestyle, and cost, lifestyle in the sense of not wanting to spend 14 hours a day in front a computer screen day trading, and cost in the sense of reducing the amount of trades or investment placed.

However, the key to all this is to develop a strategy with an EDGE based on your circumstance, temperament, experience and the appropriate financial vehicle.