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You have probably heard some people you know talk about what stocks to buy or sell or what mutual funds to invest in. You’ve heard some people suggest looking at the charts and “P/E ratios”, buying when it dips to a certain price and selling when it reaches another, but you may have also heard some people suggest buying certain well known investments and holding on to them for 20 years or more.
What should you really do?
Well, it depends. Do you want to trade and try to make money now, or do you want to invest for the long term? (You can still do both of course.) If you can’t decide or if you’re just learning how to invest and you’re wondering what’s the difference between traders and investors, then you’re in luck! We’ll talk about that here!
In today’s world, most of us earn money through our jobs or businesses. As employees or freelancers, we sell our time, skill, and effort. As business owners, we trade or create and sell products and services. Either way, in general we put in our own time and effort to earn money.
Thankfully, personal finance and investing authors and teachers like Robert Kiyosaki, George S. Clason and many others taught us that there’s another way. We can make our money earn money FOR us through investing in stocks, bonds, mutual funds, currencies, real estate, and more.
What’s the Difference Between Traders and Investors?
When looking at stocks, currencies, funds and other investments, there are two common approaches. We can concentrate more on the charts and numbers to look for patterns, an approach known as technical analysis, but we can also do some in-depth research on the companies or assets relative to the market, trends, and the overall economy to see if they’re actually worth investing in for the long term. That’s called fundamental analysis.
(Click here to learn the difference between technical and fundamental analysis.)
We can either attempt to profit from the short term price movements as traders, or we can try to profit from our investments’ long-term prospects as investors. Whether we’ll be better at trading or at long-term investing will depend on our temperament and the strategy that we want to use. Here are some of the most noticeable differences between traders and investors.
Traders:
- Traders try to profit from short-term price movements.
- Traders tend to use technical analysis more often to look for patterns in the charts and then try to profit from where they think the price would go. They would either buy now to sell it at a slightly higher price a short while later, or “short sell” to earn a profit if they think the price will go down (read about short selling here).
- Trading can take more time and effort. You’ll usually have to watch the charts’ movements like a hawk, and you will also need to watch the news for big announcements (a bit of fundamental analysis in a trader’s strategy).
- Since most brokers charge a fee for every transaction, traders will usually pay more in fees and the “spread” (difference between buy/”offer” and sell/”bid” price).
- If you like the excitement of watching charts, numbers and financial news and you enjoy “playing” the market like a high-stakes strategy game, you will probably want to try trading more.
- (Note: I highly recommend that you avoid the mindset of “gambling” in the stock market. You’re not there to play, you’re there to profit for your family and future.)
Investors:
- Investors aren’t looking for a quick buck. Investors are looking for great assets that they can invest in and earn a profit from several years down the line.
- Investors tend to use fundamental analysis more as they need to be sure that the asset they’re investing in is worth the money and will grow in value in the future. They will then either earn from the dividends (for stocks) and capital appreciation of their investment.
- Investing for the long term will usually take a lot more time and effort at the start when you’re doing research on the investment. After that, however, most investors will simply hold on to it for the long term and stop paying attention to market noise that can affect the investment’s price.
- Investors make fewer trades than traders so they pay less in broker’s fees.
- If you have the self-control to just leave your well-researched and well-chosen investments alone regardless of what you hear in the news, you will likely be better off as an investor. Unlike other things in life, it does pay to be lazy when you’re investing.
I hope you learned a bit more about the difference between traders and investors. Whichever strategy you want to use more (you can do both after all), just remember that you will still need to do a lot of research and planning if you want to increase your chances of success.
When it comes to money and investing, there will always be some amount of risk. You can, however, lower the risks involved the more you learn and practice. After all, it’s risky to drive along mountain cliffs… but it’s even riskier if you never learned how to drive and you put your foot on the gas pedal anyway.
Remember: DO. YOUR. HOMEWORK!
Don’t gamble with your money. Stick to your well-chosen investment or trading strategy!
Always be on the lookout for great resources online, so if you want to learn how to profit from the stock market, you can check out websites like exness review for more information. I hope you enjoyed reading this article! If you want to learn more about stocks, bonds, mutual funds and other investments, check out our other articles here!
- What are Mutual Funds? (A Short Guide for Beginners)
- Investing 101: What is Compounding (Compound Interest)?
- What’s the Best Investment for Beginners?
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