Trader and investor: similarities and differences
There are two main ways to make money on the exchange - investing and trading.
A trader makes money trading securities. The trader's profit is derived from the price difference of securities. In most cases, the price difference arises when stock quotes rise or fall over time, and the essence of the trader's work is limited to speculation in securities. It allows to achieve more profit than just investing, and may well be the only source of income. On the other hand, a trader (often they are called just speculators) takes more risks. The wrong decision alone and their losses will be huge.
Trader often trades based on technical analysis of the market. With its help, the trader determines where stock quotes can go and at what moment they should make a deal. However, the fundamental factors are not alien to him. From time to time he takes into account the economic situation, corporate news and much more.
The speculator opens positions, i.e. he buys or sells shares for a short time - from a few seconds to several weeks. Such trading requires very quick decisions and is associated with severe stress.
One of the most famous traders in the world is called Lewis Borselino. He has dedicated 18 years of his life to the Chicago Stock Exchange. All this time Lewis worked on the platform for traders, where others would not stand two years. In the first eight years on stock exchange he made his first million. He was only 30 years old at the time. Now Lewis Borselino is a world-class expert in exchange trading and is included in CNBC leading traders' rating.
The majority of traders are hired employees and trade employers' funds. These are professional market participants working for banks, investment companies, pension funds, etc., who receive a percentage of profit from transactions as a reward. In this case, all the risks are borne not by the trader, but by the employer. A trader risks only his reputation. For such work, a special license is required.
As a rule, you do not need a license to trade on your own funds. In this case, the trader acts at his own risk, that is, he is responsible for both profits and losses.
Investor. Less aggression, more calculation.
Investor tends to invest in securities. The investor's profit comes from the growth of prices and dividends received during the investment period. They usually invest in shares and keep them for a long period of time - from a year or more. The profitability of such investments is lower compared to trading. This is due to the fact that an investor makes much less transactions than a trader. However, the risk of investing is much lower: as a rule, the long-term trend of shares is always directed upwards, so the investor may not be afraid of being left out if he has patience.
Most often, the investor relies on fundamental factors in his calculations. They help him to evaluate the long-term attractiveness of the chosen company. But, as in the case of a trader, technical analysis can be a useful addition.
In order to make a final decision about buying shares, an investor needs to consider two main parameters. Which are the relative value of the securities and the company's prospects. Having studied multipliers, it is possible to understand, whether shares of the company cost the money which is asked for them in the market. It is also important for the investor to have an idea of the future success of the company, looking at its financial stability and future cash flows. Financial statements can help answer these questions.
With a competent approach, investing can provide a comfortable living while retiring and a good passive income. But to really achieve this, you need an investment plan and regular investments. In this case, even the smallest amount money can be turned into much bigger capital within a short time frame.