In the business, the term "TRADER" is used regularly in speech and writing. Sometimes the word is misused to create perception and gain an unfair advantage..., but this should not be new to you.
Not many know what a trader does.
One thing sure is that the trader is NOT a magician with a magic wand that can make money out of thin air. Surely not! Experienced traders can generate healthily, sometimes totally astounding, profits for the investor. What is essential to realize and understand is that they do it the old fashioned way, which is the same way asset managers, securities firms, and banks do it; by prudent management of the client's funds.
Now we can hear you ask what it is that a trader do? Let's see what services a trader, after signing a contract with the investor, routinely will provide.
Arranges for secured, non-principal-depleting credit facilities for trading purposes via the closing bank.
Provides access to paper supply contracts (MTN's "AA" credit-related or better)
Allows access to exit buyers for 100% of the existing supply contracts
Orchestrates the execution of the paper supply contracts for trading via the closing bank (some will say a trading bank)
Provides compliance; clearing and settlement support
Takes responsibility for invoicing and trading activity
Responsible for settlement of profits and weekly accounting
Let us have a close look at what a non-principal-depleting credit facility is.
The trader typically arranges a credit facility to facilitate the "buy-sell" trading operation with the outcome of a non-restricted credit line held on deposit in a trading account at the closing bank.
The credit line is maintained in a non-principal-depleting status at all times. It means that the balance of the cash on deposit plus the value of the AA-rated instruments on deposit in the trading account (at market value) WILL NEVER BE LESS than the total of all proceeds held on deposit in the account, hence the fact that the proceeds from the credit facilities are never put at commercial risk. Nor will the funds (or instruments) used to collateralize the facility in the first place be put at risk.
All of this confirms and highlights the secure nature of these situations.