What Is the Difference Between a Trader and a Long-Term Investor | Motilal Oswal
What Is the Difference Between a Trader and a Long-Term Investor | Motilal Oswal

The Difference Between a Trader and a Longterm Investor

Two very distinctive methods of trying to earn profits in financial markets exist. These are operated by two different individuals, traders and investors. Although a trader could technically be called an investor since the individual doing the trading is buying and selling assets for a profit, the two are different in some respects. Through participation in the markets is done by both an investor and a trader, an investor, especially a long-term investor, may seek larger returns over an increased time span. So, an investor will buy an asset and stick it out with the asset over an extended period. Once you have the drift of what the purpose of each one is, and the goals of each, you will see the differences between investors and traders. 

Investors and Investing

The goal of investors and investing is typically to grow wealth over a long time span. Investors will usually buy and hold on to a portfolio of a blended collection of assets like mutual funds, stocks, bonds, and many more instruments of investments. It is important to note that investors normally enhance their earnings by reinvesting dividends/profits to supplement their existing portfolios with more assets. Therefore, investments are held for a number of years in many cases, and perks like interest, stock splits and dividends are made the most of. That’s why an investor is generally, but not always, a long-term investor. Another behavioural trend that distinguishes, very obviously, the investor from the trader, is that an investor will ‘ride out’ the storms and downtrends of the markets. They hold on with the expectation that markets will bounce back at some stage. The goal of investors, therefore, is to either save wealth for retirement or some other big expense in the future. The daily market fluctuations are less important to investors, rather, the consistent growth of wealth is key. 

Traders and Trading 

Trading is a dynamic activity and traders, by dint of that, are dynamic individuals. Trading involves very frequent online trading transactions, like the purchase and sale of commodities, currency pairs, stocks, among other varied instruments. The goal of a trader is to generate gains that surpass investing of the traditional ‘buy-and hold’ kind. For instance, an investor may be quite content with a 10% yearly gain on investment, but a trader will only be satisfied with that type of profit on a monthly basis. The long-term investor will display patience; the trader might not. Traders are investors for the short term. 

Styles of Investment

Traders employ a whole lot of styles while trading and they employ strategies that help them to earn profits. Although they undertake fundamental analysis to find out whether a company or an asset’s potential is worth investing in, they don’t look far into the future. Investors who are long-term investors also undertake some amount of analysis to check whether their investment will blossom in the distant future, their goals are different, and they don’t have investment ‘styles’ as such. Talking about styles, a trader’s style refers to the frame of time (holding period) in which trading instruments are purchased and sold. 

Investor Insights

You may decide to be a trader or an investor. Whatever you wish to become, or currently are with reference to investments and the creation of wealth, you can always bank on a dependable broker like Motilal Oswal for all your investment requirements. 

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