Investing vs. Trading

A lot of people asked me about the difference between investing and trading. I keep telling them that there is slight difference between these two methods or styles regarding the Security markets as well as commodities and Forex. Investors always buy and hold for long time like for example 10 years at minimum, while traders on the other hand juts buy security to sell it may be within a hour or may be less or sometimes they keep it for months. Also investors are always watching the companies finance to see which one is more better than the other, but traders are not interesting in these kind of stuff , instead they are interested in seeing if the price rich 52 weeks high or lows , and how this price will react against specific support and resistance level. This explanation still did not deliver my message to all those who still asking about the difference between these two type of people, until I realize new way to tell people what is the real difference between investors and traders which is really simple and straight forward.

Investors are betting in companies. They see potential in a company and put their money and invest in it for long time to see if this bet was right or wrong and they don’t care if it was wrong because they manage their money very well and diversify their investment in so many companies that they don’t want all them to be successful. Instead, they just want few of them to be successful and they don’t care about others. Because the success of one company where they invested in it, is willing to cover all their losses and made them rich for the rest of their life. Good example for investors is Warren Buffet and Venture capital investors who are willing to invest in so many companies and they are not looking for all of them to be good investing, instead they are looking for only one company to be successful and the rest they don’t care about it because the success they are waiting for is not 10% or 20% or 100% in investment, they are looking for a profit of 2000% or may be more in their investment.

While traders betting in stocks or security price itself and see if there is a potential that this price will move up or down based in their analysis, they will buy or sell that stock or security accordingly. Traders’ money management is different than investors’ money management. They are looking for 10% to 20% or may be in best scenarios they are looking for 100% profit, and they always put stop loss orders where they don’t want all their money to be wiped out and loss everything if the market goes in the other direction against their interests which made them exposed for the risk that all their stop loss to be hit before the price goes in their favor and loss all their money. Because of that they never made a lot of money or if some of them is good and was able to made some profits in trading is because he/she are so experts in money management.

To summarize my point, investors have the potential to made a lot of money in stocks market or other financial market than traders because they are using time in their side and have the ability to wait for long time in order to their betting to be fruitful.