Trader Vs investor: What is the Difference Between the Two?

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Traders and investors may seem the same to you and you may often have used the terms interchangeably.

But, they are very different from each other. In fact, you must know the difference between the two before you start putting money into the stock market.

If you tend to behave like both, it can seriously affect your portfolio as they are somewhat different methods to reap profits from the financial markets.

Investors Vs Traders

Investors, typically build wealth by holding stocks for a longer term than traders, sometimes over a decade. Investors are generally not affected by short term declines in the financial markets.

Investing can be compared to buying an asset whose value grows over time provided you choose the stock by its quality.

Traders are those who buy and sell the stocks more frequently than investors. They hold the stock for a shorter period of time depending on their suitability and risk tolerance.

Goal

The goal of an investor is to build wealth over a long period of time by holding his portfolio. However, a trader's goal is to get returns from stocks that outperforms.

Tools for analysis

Investors generally depend on market fundamentals like earnings, price/earnings (P/E), management forecasts etc. for making long term analysis.

On the other hand, traders are more concerned over price movements for their entry and exit.

Click here to know about the mistakes an investor should avoid while investing in shares.

Types

Investors are only one kind but traders are four kinds depending on their time of holding the stock. There can be day trader, swing trader, position trader and momentum trader determined by the time frame.

* Day traders hold the stocks throughout the day but there is no overnight holding.

* Swing traders hold the stocks from days to weeks.

* Position traders hold the stocks from months to years.

* Momentum traders hold the stocks for minutes, hours or a whole day but not overnight.

Conclusion: So, now its pretty clear that trading and investing are entirely different concepts. You must not trade as well invest in the same stock.

It is advisable to judge the quality of the stock as well as find out your goal - whether investing or trading and then start putting money into the market.

GoodReturns.in

Story first published: Thursday, June 19, 2014, 10:08 [IST]
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