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What Is The Difference Between Investing And Trading?
This is not a very difficult answer to give for those who have been associated with the stock markets for a long time. In fact, when you buy and sell shares you can either be a investor or a trader or do both at the same time.
| Trader | Investor |
| A trader takes a short term view of the market | An investor takes a long term view of the market. |
| A trader tends to focus more on technicals and charts. | An investor may nor may not focus on such charts. |
| A trader mostly buys into the derivatives market. | An investor may generally avoid the derivatives segment. |
| Individuals may engage in short selling. | They generally do not short sell in the market. |
| He may not study fundamentals of a stock. | He tends to study the fundamentals of a stock before buying. |
A summary of the difference between trading and investing ?
As can be seen from the table above, there are many differences between a trader and a investor. Among the major differences is the fact that a trader is generally a short term investor, while an investor is generally a longer term investors.
A trader rarely studies the fundamentals of a stock. He would be least interested in knowing whether a stock is overvalued or undervalued. For example, he would look more at charts and graphs. An investor on the other hand would look at the earnings per share, book value, price to earnings ratio and other key parameter before investing. He would try to figure out by himself or though advise from others if a stock is overvalued or under valued.
A trader on the other hand would take a closer look at technical charts. He would try to study the 100 day moving average, 200 day moving average etc. This does not mean that he would ignore technical charts and vice versa. Both a trader and an investor would tend to look at both, though the chances are minimal.
Should You Be Trader Or Investor?
Should you be a trader or investor is a very difficult answer to give. It would depend on your own objectives. You can make and lose money as a trader as well as an investor. There is no fixed mantra of making money through investing only by a particular means. It depends on your own understanding and patience in the markets.
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