Independent Trader vs. Employed Trader: Differences, Pros, and Cons
February 3, 2021
In the collective imagination, there exists only one type of trader: the independent one, who operates on their own account, risks their own capital, and is perfectly in control of themselves. Overlooking the variety of false myths that afflict this figure, it is necessary to make a clarification: there exists at least one other type of trader, very neglected, almost ignored, but not for this reason any less real. We are talking about the employed trader.
We will discuss this in this article, making a comparison with the independent trader, identifying the pros and cons of both figures.
The definitions of independent trader and employed trader
The definition of an independent trader is almost superfluous. Anyone interested in trading is well aware of this figure. After all, it is the one that dominates the scene. In any case, an independent trader is defined as an investor who operates in the markets, generally with a speculative intent, but at the same time is not tied to any organization or company. The independent trader invests with their own capital and pockets all the profits they manage to generate.
It's a different story for the employed trader, whose meaning is inherent in their very name. This is an investor who operates on behalf of a company or organization, usually a commercial or investment bank. They are an employee in every sense, and are salaried. The profits they generate go to the "employer", although a part of their income may be linked to results.
Knowing the figure of the employed trader is important as it represents a more than dignified outlet for those who, perhaps as a former independent professional, desire greater stability and are therefore willing to put their skills at the service of a structured reality.
The pros and cons of being an independent trader
Let's start by closely analyzing the two figures, talking about the independent trader and listing the advantages and disadvantages associated with this figure.
The biggest advantage that the independent trader can exploit is the possibility of pocketing profits entirely. Everything they earn ends up in their pockets, all the profits they generate go to replenish their portfolio. In short, they act almost as if they were an entrepreneur, with the difference that their management costs are almost zero, excluding any automation software or commissions to be paid to the Broker.
Another advantage is extreme flexibility. The independent trader does not have to answer to anyone, not even about the ways in which they carry out their activity. They can decide how much to trade and for how long. They can choose the tools to use, the objectives to strive for, and the strategies to put in place. In fact, total freedom is one of the reasons for attraction, perhaps the most suggestive, at least for those who, as laymen, feel constrained in an employee job that gives them no satisfaction.
Of course, there are disadvantages, which then represent the other side of the coin of both independence and freedom. Specifically, independence also means responsibility. The independent trader assumes responsibility for their actions in the purest sense of the term. That is, they pay for their mistakes. Therefore - it may seem obvious but it should be highlighted - they risk their own money, the money they lose is their own, perhaps earned with extreme effort.
Another disadvantage can be embarrassment, or rather the discomfort that arises from total freedom. In its own way, even freedom can be binding. The exercise of choice can generate stress and exerts considerable pressure from an emotional point of view. In some ways, this dynamic involves all entrepreneurial activities to some extent, with the only difference being that, in the case of online trading, the individual really finds themselves traversing a field that is not only mined but also does not offer even a shadow of a clear path.
Another disadvantage, but one that can involve extremely subjective modalities, to the point of being impalpable to some traders, is alienation. Trading can take up a good part of the day, almost as if it were a job (in fact, in some ways it is). Now, working "alone" for all this time can lead to unpleasant sensations, a sense of estrangement that is difficult to tolerate. It therefore appears fundamental to be able to preserve the social element, to be able to detach when necessary. A precaution that is more difficult to take than one might think.
The pros and cons of being an employed trader
The discourse is radically different for the employed trader, in fact almost the opposite.
The biggest advantage of the independent trader is stability. If the independent trader risks their own money, and does so every day, the "employee" knows that, roughly speaking, if they don't mess up too much, at the end of the month they will receive their salary. Now, stability is a value that is all in all subjective. For some it is important, for others it is less so. Therefore, everyone gives a different weight to this advantage. After all, it is no coincidence that some opt for an entrepreneurial activity, for the cultivation of their own project, and others aim for the classic "permanent position". Dynamics from which trading is not at all exonerated.
Another advantage is deresponsibilization. Very often the employed trader follows guidelines and is in any case framed within an entrepreneurial vision. Moreover, as already well specified, they do not risk their own money. Therefore, they feel less pressure than their independent counterpart. Obviously, the deresponsibilization is not total, also because they will have to account for their results to the company they work for. The consequences of their actions, however, can be more or less impactful depending on the approach of the company itself, which can be severe or lax. In short, the dynamics are the same as any other employed job, at least from this point of view.
As for the disadvantages, the employed trader has at least two. The first concerns the question of earnings. It is true that the independent trader loses out of their own pocket when they fail a trade, but when they generate a profit they can keep it for themselves. The employed trader, on the other hand, earns not for themselves but for the company. This dynamic is absolutely bearable when the profits are "normal" and fall within the physiology of their activities. When the profits are higher than expected, however, this dynamic can generate some frustration. It should be said that the employed trader still benefits from the profits they generate, as in the vast majority of cases the company pays them a percentage of the profit itself. But it is a percentage, precisely, which may not be enough to placate the trader's regret.
Another disadvantage concerns relational dynamics. The employed trader operates within a context, they are not alone. Forced companionship can galvanize them but can also penalize them if the environment presents elements of toxicity, an eventuality that is far from rare when it comes to employed work. After all, the difficult relationship with colleagues is one of the reasons why many, regardless of the desire to trade, shun employed work.
Finally, but this is a subjective disadvantage, boredom. Employed work can be boring, especially in terms of hours. There are those who hate even just the idea of attending an office for eight hours a day. It is a question of the relationship with routine, which for some is simply problematic.
In short, both the employed trader and the independent trader have to come to terms with pros and cons, with positive dynamics and negative dynamics. What weight to give to each of them? That is the million-dollar question. The answer is always subjective and determines the preference towards one figure or the other. The advice, before making a decision in this regard, is to weigh these elements in light of one's own needs and, why not, one's own nature.
