There is a fundamental difference to being an investor or being a trader and it is important to understand which set of skills you are trying to develop. Whilst it is possible to be a trader and an investor, I would strongly advise focusing on one skill at a time.
An investor is a person or organisation that puts their money towards an asset (such as company shares, gold, property..) with the aim of receiving financial gain over time. The financial gain can be either an increase in the capital value over time or a regular income or both.
The investor will have undertaken research to understand the asset they are investing in. They will have confidence in its long term strength and it’s ability to return them more than their initial contribution.
There are two different types of investor; an Active Investor or a Passive Investor. An Active Investor manages their own investments and portfolio and does their own buying and selling. A Passive Investor puts their money into a professionally managed portfolio and pays a management fee for the service.
There are a number of different assets available to an investor which all provide their own types of risk and reward. Some common ones include:
Stocks & Shares (Equities)
An investor needs to understand their GOALS and RISK LEVEL to help them determine the strategy that best suits their needs.
A trader looks for the short term moves in the stock price with the aim to buy and then sell for a profit. (Traders can also sell and then buy for a profit known as shorting).
Traders will mainly focus on the price and the technical analysis (chart patterns) to try and predict when a price will move in a specific direction. Traders are less interested in the fundamentals of the business or asset as they have no real requirements for it’s long term success.
There are many different variations of trading but there are 3 main categories:
Day traders do not hold a position over night. In fact, they could buy and then sell within a few seconds. The day trader will be looking at chart patterns but will usually be focusing their efforts on trades with a catalysts, such as news events (i.e healthcare stocks with a recent successful trial). Day traders also tend to trade on margin (borrowed money from the broker) to increase the size of their positions and maximise their profits.
Swing Traders can hold a position from a couple of days to a couple of months. Swing traders, similar to day traders, are looking for the right time when a price is about to move in a specific direction. Swing traders are looking for a price move over multiple days or weeks. They will use technical analysis but will also need to understand some of the basic fundamentals. The longer the position is held for the more fundamental analysis is required. Swing Traders can also trade on margin but this can be expensive due to over night borrowing fees.
Position Traders hold positions from a couple of weeks to several months. A position trader will use more fundamental analysis than the swing trader and the day trader and will be less interested in short term price movement. This style of trading is longer term but still with the intention of selling for a profit after a specific price move or time period.
There are many variations and different names for traders due to the different time frames and strategies, some examples below:
Small Cap Trader
Large Cap Trader