There are several well-practised ways to turn a return on any given investment, whether short, medium or long-term. The way that you trade, the duration of trading, and the type of stocks specialised in all make a difference to how a trader defines themself. However, underlying all decisions are the two core classifications defining all those turning a profit – trader and investor.
What Is A Trader?
A trader buys and sells assets and digital assets at a high frequency, with a relatively short duration between trades. The price movements are higher within a specified period of time, translating to more profitable positions as opposed to an investor’s buy-ins and revenues.
Traders generally use four basic strategies depending on their trading style. Position traders hold mid-term trades for a period of months to a year. Swing traders trade within days to weeks. Day traders open and close positions over minutes to hours and never hold a trade overnight. Scalp traders only hold their positions for seconds to minutes, nothing more.
For those who can handle the risk, trading offers the potential of high, quick profits. Trading over a short to medium-term period requires in-depth market insight. A trader will resort to both fundamental analytics and technical analysis tools to identify trades with a high likelihood of profit. Unlike most investments, being a trader requires you to have a high tolerance for risk and a dedicated amount of time allocated to trading.
The volatility of trading isn’t suited to everyone’s personality. Instead of waiting out market fluctuations, traders capitalise on them, therefore maximising the potential of investment capital. Yet, every trader will inadvertently have to suffer several failed trades while learning markets. Even when experienced, success is a marginal likelihood and not a total success. Before assigning any significant amount of money to trading instead of investing, keep this in mind.
What Is An Investor?
An investor buys and sells assets and digital assets as long-term investments, securing purchases with relative stable value and steady appreciative growth. Unlike a trader who often profits off uptrends and downtrends, an investor targets trades that they can buy, hold and sell after an extended period for a fairly predictable range of return. Investments will be held for years to decades if deemed appropriate by the investor.
Any stock or digital asset with relatively low volatility, reliable historical performance and a good likelihood of producing an annual return of 10% or more per year is considered a good long-term investment. Stocks, bonds, exchange-traded funds, and cash equivalents are the most common long term investments, although cryptocurrencies considered to be tethers are gaining momentum.
Investments supply a steady rate of return, growing a portfolio over a period that’s generally far longer than a year. Investing is the way that retirement accounts grow, focusing on fundamental analytics that gauge the long-term performance of a potential investment.
Money devoted to investment is invested over a fixed, extended predetermined period in most cases. An investor conventionally reinvests any returns received early like dividends or interest into additional stock, representative contracts, or digital assets.
What Is The Difference Between Trading And Investing?
The main difference between trading and investing is that a trader buys and sells stocks, commodities, derivative contracts or digital assets for short-term profit, whereas an investor enters into a long-term trade, acquiring stock or digital assets that are expected to appreciate over an extended period granting steady, predictable growth.
Can You Be Both A Trader And Investor?
Market participation in both short-term traders and long-term investments is possible and fortifies a portfolio with diversification that lowers the overall risk profile significantly. Those who do decide to combine trading types will do well to set fixed parameters involving both long and short term characteristics for all trades and investments. This effectively prevents being shifted from a position during what looks to be an unfavourable market cycle instead of holding as the investor should. It also limits the risk of short-term trades by testing the assessment against long-term technical parameters.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only