1. Piracy --> You demand a guy with trader ID to hand over the money. If they refuse you may blow them up. Can only do this in a Gunboat or smaller.
2. War --> If the trader belongs to a Faction (player faction I mean) you are at war with, you may blow them up. You can use any ship here, although using a capship is considered unsporting I believe.
Hope that helps...
o.
Hey! But aren't player merchant factions automatically at war with pirate factions?:P