Trader Vs Investor: Which One Is Better?

In 2020 and 2021, many people invested their money in the stock market, and those people considered themselves investors, but this is incorrect. Trader vs investor is different if you look closely. The main difference between trader vs investor is that traders jump in and out of stocks within weeks, even in minutes, with the aim of short-term profits, and on the other hand, investors have a longer-term outlook. They think in terms of years and hold stocks through market volatility. If you are one of these people who consider themselves to be investors, then you are at the right place. 

Precap:

Who are called traders?

Types of traders.

Who are investors?

Types of investors

Difference between trader vs investor

Who are called traders?

A person who engages in the purchasing and selling of financial assets in the financial market for themself and on behalf of another person and any type of institution/organization is called a trader.

Traders are responsible for making prices and executing trades in bonds, equities, commodities, and foreign exchange, dealing on behalf of, and for the benefit of, investment banks.

Types of traders

1. The Day Trader

2. The Swing Trader

3. The Technical Trader

4. The Fundamental Trader

5. The Long-Term Trader

The Day Trader

These traders execute intraday strategies to profit off relatively short-lived price changes for a given asset. Day traders employ many techniques to capitalize on market inefficiencies, often making lots of trades a day and closing positions before the trading day ends.

The Swing Trader

Swing traders and day traders appear similar in some respects. The main factor differentiating the 2 techniques is the holding position time. While swing traders may hold stocks overnight for several weeks, on the other hand, day trades close within minutes or before the close of the market.

The Technical Trader

To build hypotheses about the direction in which the market is likely to move, technical traders examine price charts. 

The Fundamental Trader

Fundamental trading is a method in which a trader focuses on the company’s particular events to determine which and when stock to buy. Trading on fundamentals is more closely associated with a buy or a hold strategy rather than short-term trading.

The Long-Term Trader

They are also known as position traders, which refer to a trading style in which the trader will hold on to a position for an extended period. A position trade can last anywhere from a week to a few years.

Who are called investors?

An investor is any person and entity (like a firm or mutual fund) who commits capital with the expectation of receiving financial returns.

The main goal of an investor is to maximize return and minimize risk. It contrasts with a speculator willing to invest in a risky asset with the hopes of getting a high profit.

Types of Investors

• Angel Investors
• Venture Capitalists
• P2P Lending
• Personal Investors
• Institutional Investors

Angel Investors:

They are high-net-worth private individuals that provide financial capital to a startup or entrepreneur. The money is provided in exchange for an equity stake in the organization. 

Venture Capitalists:

They are private equity investors, usually in the form of companies, that seek to invest in startups and other businesses.

They do not seek to fund businesses in the starting stages to help get them off the ground but rather look at companies already in the early stages with a chance for growth.

P2P Lending:

P2P lending (peer-to-peer lending) is a form of financing where loans are obtained from other individuals, cutting out the traditional middleman, like a bank

Personal Investors:

Personal investors are not professional investors but rather those seeking high returns than simple investment vehicles, like certificates of deposit and savings accounts. They can be any individual investing independently and may take many forms. These investors invest their capital, usually in bonds, stocks, mutual funds, and exchange-traded funds.

Institutional Investors:

They are organizations that invest the money of other people. For example, institutional investors are hedge funds, mutual funds, exchange-traded funds, and pension funds. Because they raise large amounts of capital from lots of investors, they can purchase a lot of assets, like big blocks of stocks.

Also read: What Is The Importance Of Finance Management In Business?

Difference between Trader vs Investor

Below are some differences between traders vs investors. These differences help you to understand the difference between trader vs investor.

S.no	Particular	Trader	Investor
1	personality	Impatient	patient
2	Time horizontal	hours/days/weeks/months/years	Year decade
3	Strategy	Momentum traders/chartists	Value investors
4	Competing with	traders/computers algorithm	Current market fashion
5	Information required	Real-time news data	fundamentals
6	Time-intensity – Day	Very high	Very low
7	Time-intensity – overall	Very high	Low to medium
8	Risk level	Medium to high	Low to medium
9	Stress level	Relatively high	Relatively low
10	Period	Short term	Long term

Personality

As the trading period is constrained to hours/days/weeks/months/years, a trader must constantly look for ups and downs during the holding time frame. If you lose focus, you have to pay the cost of loss. At the same time, an investor makes a long time of a year or decades. So, they are very patient and value-oriented.

Time Horizon

The time horizon for trading is between a couple of minutes to a month. While for the investor, it is a very long decade.

Strategy

The technique, analysis of trading, and working strategy depend on momentum trade/ chartist while the investor goes through value analysis.

Competing with

The trading competes with a professional trader and keen trading calculation while the investor needs to go for the market’s present condition for investing.

Information required & decision making.

Traders are looking for opportunities where they can exploit the price volatility and shocks. A more significant fraction of traders’ decision-making is speculative and intended to take benefit of the momentum of the stock movement, which may be positive or negative. ‘Technical analysis is widely used to predict speeds for quick decision-making.

Investors are more likely to conduct enough due diligence before making their decisions. They are also more likely to complete a deeper analysis of the fundamentals to understand the businesses better as they usually look for sustainable competitive benefits.

Time-intensity

The daily intensity and fluctuations for trading are very high compared to low or medium for investing.

Risk level

How much risk are you willing to accept to get a particular level of reward; riskier stocks are both the ones that can lose the most and gain the most.

The risk level is high for traders as compared to long-term investors.

Stress level

Fluctuations in the market and high risk generate high stress for traders compared to investors. But the real scenario is that everyone will not be able to be a long-term investor because of a lack of reserve money.

Quiz: Trader vs Investor

1.- Which of the four investments has historically produced the highest returns?

1.  Stocks.
2.  Real Estate
3.  Bonds.
4.  Cash.

2.- What happens when an investor over-diversifies?

1.  They make more money.
2.  They drive their money manager crazy.
3.  They create high-risk scenarios.
4.  They are spread too thin.

3.- What is a Head and Shoulders pattern?

1.  A warning that prices will decline after the pattern has formed.
2. A trend for spotting stocks on the verge of a rally.
3.  A design that is not often correct.
4.  A bullish signal about prices.

4.- What can be learned about investing from Warren Buffet’s strategy?

•  Sell, sell, sell.
•  Pay attention to rumors and pure market price indicators.
•  Use a buy-and-hold strategy.
•  Skip the research.

5.-  What factors does technical analysis include while evaluating investments?

1.  A company’s profit margins.
2.  A company’s revenue growth.
3.  The price at which the stock trades.
4.  A company’s competition.

Conclusion 

Investors involved in buying an asset you expect will rise in value over time, with the goal of long-term profits. Traders are about timing market moves and buying and selling stocks within quick short-term gains. I hope now you understand who is called a trader and who is called an investor and the difference between a trader vs investor.

FAQs: Trader Vs Investor