If you invest in share market, your aim may be to generate gains from a long-term investment. But a trader would approach things differently. A trader prefers a short-term investment and aims to sell the shares in order to profit from price fluctuations.
Period of investment: The trader goes for a short-term investment, holding the shares for a few months, weeks, or days. Intraday traders, in fact, buy and sell shares within a single trading day. An investor, however, leans towards long-term investment. They hold on to shares for more than a year, even for several years, to generate capital gains.
Risk appetite: A trader faces share price fluctuations in the short term. So, it helps the trader to have a high tolerance for risk. The investor is more risk-averse. Nevertheless, when you invest in share market for the long term, daily market cycles may not have a big impact.
Approach: Traders profit from stock price movements. They buy shares when prices are low and sell when prices go up. So, traders monitor the market regularly to identify the best opportunities to make a trade. The investor, however, is in it for the long haul. When you invest in share market for a longer period, the benefit largely comes from the power of compounding interest.
Psychology: An investor is patient enough to sit tight and hold on to a long-term investment. Quite often, investors have a low appetite for risk as well. Meanwhile, a trader welcomes risk, does extensive research, and sticks to a defined trading plan. Traders also think on their feet and make course corrections when the market moves against them.
Decision-making process: Investors may take a lot of time before deciding to invest in shares. They study the fundamentals of different companies, assessing their management practices, growth potential, and other factors. While traders do look at the fundamentals, they also conduct technical analysis using price charts and other tools. Their decision-making tends to be quicker, but they usually already have a strategy to guide them.
Capital requirement: Traders look for short-term investment opportunities that offer gains through price movement. But to earn substantial profits, they need to trade large quantities of stocks. They can do this using margin funds borrowed from the broker. Investors, on the other hand, must arrange for funds on their own. They may also be locked into an investment for a longer time, whereas traders can quickly liquidate positions as required.
Whether you decide to be a trader or an investor will depend on your financial needs and your approach to finances. Both methods bring returns provided you act in a disciplined manner. If you are new to share market investments, start on the right foot.
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