Each person approaches markets using their own style. Market participants are often categorised as either a Trader or an Investor. But many utilise a mix of both styles. In general terms, traders have a short-term approach, with a turnaround ranging between minutes and weeks. While investors often keep their investments for many months or even years.
1. Traders
Traders are looking at the short term. The aim is to conduct a transaction, or several transactions, over a relatively short time period, with the aspiration of turning a profit or cutting losses quickly.
Traders are usually constantly monitoring and adjusting their positions. However, real, professional traders never operate on gut feelings or instinct but use a careful plan, analyse markets using technical analysis and utilise tools such as stop loss and take profit.
Trading is usually considered to be of higher risk. Often, traders will use leverage, which can dramatically increase profit, but also carries significantly more risk.
2. Investors:
In contrary to traders, so called investors are looking at the long-term. An investor can hold an asset for years, sometimes decades. They made take partial profits or dividends. But often dividends are automatically reinvested to maximise their profits by compounding returns.
Investors belief that markets, and individual assets, will always grow in the long-term. Investors will remain calm when markets tank or individual investments turns red. They take temporary losses into consideration. In addition, investors normally re-invest much of their profits or dividends, such to add more volume to their portfolios and increase potential long-term profit using compound interest.
Investment is considered lower risk than trading, even though it does involve a certain amount of risk. Unlike traders, investors often invest in certain assets and only check on their portfolios periodically. However, it is important to monitor your investments, even with a long-term approach.
Sven Franssen