Are you an Investor or Trader?
Before I started dabbing in financials (stocks, bonds, etc.), I used the terms investor and trader interchangeably. Did you know that there are differences between these two terms?
Both the investor and trader allocates capital, or a sum of money, with the expectation of a financial return through various means like equity, debt securities, real estate, currency, commodity, derivatives, etc.
The differences between an investor and trader are:
| Investor | Trader |
|---|---|
| Buys and holds shares for the long term (years or decades) | Hold shares for short-term and look for quick profits in a matter of minutes, hours or days |
| Performs fundamental analysis to look at the health of the company (its business prospects, dividend yield and growth, financial statements, etc.) | Performs technical analysis to study chart patterns (uptrend, downtrend, support, resistance, etc.) to determine where the price of the asset is heading |
| Typically gains from dividends or capital gains of assets (appreciating share price) | Gain from both appreciating stock price and depreciating stock price (short) |
| Concerned with the intrinsic value of share | Concerned with the intrinsic value of share |
| Typically spends less time in monitoring prices as fluctuations even out gradually over time | Typically spends more time in monitoring prices as share price 'roller coasters' in short term. The more it fluctuates, the more a trader makes |
| Typically lower risk which translates to lower returns | Typically higher risk. No risk no gain! So typically higher returns (and losses) |
For me, I don’t want to spend too much time on monitoring prices or get panic attacks when share price plunges and am contented with 4% to 10% annualized return (through dividends). So my style is more like accumulating various assets (bonds, stocks, gold) and hoping that they appreciate in the long term. So yes, I am an investor (for now).
So are you an Investor or Trader?
