Difference between a trader and an investor

Trader or investor

In some cases, a trader acts as an investor. Also, sometimes, an investor acts as a trader. Notably, most traders are investors. The inverse is not true since not every investor is a trader. The underlying confusion necessitates the understanding of whom a trader and an investor are and what the differences are between the two.

Trader Definition

A trader is an individual, who takes advantage of minimal movements in the market to make money. As such, a trader focuses on making a profit. Such a person engages in trading, which involves the buying or selling of currencies, cryptocurrencies, stock, and commodities. The profit is generated by selling the product at a price that is higher than what it was bought at. The period within which the trader waits for this change to occur is known as holding position.

Type of Traders

Scalp trader

Such a trader holds a position within a very short time, that is, minutes or seconds. He or she does not hold a position overnight

Position trader

Such a trader holds a position for a prolonged period, which is more than one month. The period could transcend years.

Swing trader

The trader holds a position for more than one day to several weeks.

Day trader

Such a trader holds position throughout the day but does not continue to hold it overnight.

Momentum trader

Such a trader sells or buys a product based on the recent trends in the market.

Top traders

The generation of profits through trading has resulted in some wealthy traders such as Jesse Livermore, George Soros, and Jim Rogers, among others.

Richard Dennis Difference between Trader and Investor

Richard Dennis

He was born in 1949. Through speculation, he made $200 million over ten years.

George Soros Difference between Trader and Investor

George Soros

He was born in 1930. He made $1 billion in profit when his short-sold pounds worth $10 billion. He is the head of Soros Fund Management, a hedge fund company.

Jim Rogers Difference between Trader and Investor

Jim Rogers

He was born in 1942 and is the head of Rogers Holding. Together with George Soros, they founded Quantum Fund, which in just ten years had grown its earnings by a colossal 4200%. In the 1990s, he used the bullish call strategy to earn profits in the commodity markets

Investor Definition

An investor is an individual whose sole goal is building wealth over a prolonged period. Such a person buys a product such as stock, bonds, and other instruments of investments and then holds a position for an extended time. When the investor earns a profit or dividend from the sale of the portfolio held, he or she will reinvest or compound, thereby giving rise to additional stock in his possession. Investors hold a position for more than one year. The period could even be decades. 

Type Of Investor

Banks

These financial institutions are sources of funds through loans. The successful issuance of such a facility is subject to the fulfillment of certain conditions such as the production of collateral to cushion against defaulting.

Angel Investors

These individuals are also known as seed or private investors. They are wealthy people who then offer financial support to small businesses or start-up founders. The arrangement is that the investor gets ownership of the company after providing the funds

Personal investors

These are close associates of an entrepreneur, such as friends and family members who provide funding at the beginning of one’s entrepreneurial life.

Venture capitalists

These investors will only provide finance to a company that has already started generating a considerable amount of revenue. Since the revenue is already being generated, venture capitalists inject a considerable amount of money into the company. They then get compensated by earning a cut from the profits, ownership of the company, or interest.

Peer-to-peer lender

This is an individual or group of people who finance small businesses.

Top Investor

Several investors have grown their portfolio and have become renowned the world over. These include the following.

Benjamin Graham Difference between Trader and Investor

Benjamin Graham

He was born in 1894 and died in 1976. He became known for his excellence as an investment manager and an educator on financial matters. He mainly invested in the stock market, making money for his clients and also for himself. His strategy included not taking significant risks. As such, his mode of investment trading was safe and has been borrowed by modern-day investors.

John Templeton Difference between Trader and Investor

John Templeton

He was born in 1912 and died in 2008. His primary strategy was that he bought securities during the height of the great depression. He then sold his portfolio during the internet boom that followed. It is worth noting that he did not hold a position for the entirety of this period. He also made intelligent investment calls

John Templeton Difference between Trader and Investor

Jesse Livermore

Having no prior formal education or knowledge about the financial market, Jesse learned the ropes from his wins and losses. He started trading as a teenager, and by the time he had clocked 15, he had already made gains amounting to more than $1000. To contextualize these gains, Jesse was born in 1877. He died in 1940.

Difference between Trader and Investor

  1.  A trader holds a position for a short period while an investor holds a position for a prolonged period that could even transcend decades. For instance, in day trading, the trader only holds a position for a day after which he sells his market instrument. Market fluctuations are, therefore, of more significant concern to a trader than an investor.

  2. Traders focus on generating profits by always looking at the movement of their market instruments. Investors, on the other hand, focus on accumulating wealth by compounding their earnings, interests, and dividends. They mainly hold quality stocks

  3. Trading involves a higher risk compared to investing. This is based on the fact that trading focuses on a short period, and the fluctuations in price over that time could be high leading to low potential returns. Investing often leads to high returns.

  4. Traders mainly analyze the entire market and actively learn market trends. This requires them to possess high technical skills. Investors, on their part, mainly analyze particular stocks that they want to buy.

Trader VS Investor Conclusion

A trader can be an investor, but not all investors can be traders. The true difference lies in the period when these individuals hold a position in the financial markets. Trading involves holding positions for a short period while investing entails owning the security for a prolonged time. As a result, the latter’s potential for gains is much higher than the former’s. Also, an investor requires less technical skills.

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