For the unacquainted, talking about the investment world sometimes means spitting out the word “trading” and “investing” and using them interchangeably. In reality, these two words are far from meaning the same. Both stock traders and stock investors are participants in the market, but they do very different types of activities. Their strategies are also very different.
Stock traders
Stocks traders are individuals or entities that engage in the trade of equities. Basically, they have more to do with the transfer of financial assets. They work either for themselves or on behalf of somebody else.
Stock Investors
These are people or entities that use their own money to buy equity securities, with the goal of gaining higher returns, which can be in the form of income, interests, or appreciation in value.
More about Stock Traders
Stock traders play the market’s game with more interest on the market itself and not the company’s fundamentals. They try to generate profits from short-term fluctuations with trades that usually last for a few seconds to a week. Most stock traders are pros, although some of them only trade part-time in this position.
Stock traders generally focus on:
Price patterns
They typically scrutinize the stock’s past performance in order to predict future price movements as accurately as they can, although analysts propose that past performance doesn’t always indicate present or future movements.
Supply and Demand
Trades usually observe their trades very closely within a single day in order to find how and where prices and money are moving.
Market Sentiment
One of the best ways to successfully trade in any financial market is to gauge the prevailing market sentiment on the broader market space. These sentiments are generally dividend among the bulls (the optimistic traders) and the bears (the pessimistic traders).
Trader Support
Market makers can be hired in order to generate liquidity by trading in a rapid-fire manner. They make up one of the biggest subcategories of traders.
More about Stock Investors
Meanwhile, stock investors are market participants that utilize fundamental analysis to make informed investment decisions. For stock investors, the stock they hold is a part-ownership in a company, which means they don’t pay much attention to the short-term price fluctuations alone.
It’s very common for stock investors to use the method called “buy-and-hold,” which means buying a stock and holding it for a long time, usually for years, hoping to see its value increase in the long term.
For stock Investors, these are very important:
Value
Investors look for a company’s shares that represent a good value. Here’s a simple scenario: two companies are basically doing the same and therefore very much similar. However, they trade at different earnings multiples. The lower one may provide better value since it’s more probable that the investor would pay less per dollar of earnings for that company than the other.
Success
Investors in general are keener on finding companies that have great potential for future success. They normally measure those decisions by looking at characteristics like cash flows and financial strength.
Both traders and investors are crucial to the proper functioning of a market. Investors get support from traders through the liquidity that the latter provides in order to buy and sell shares in their companies. Traders depend on investors for the basis from which they buy or sell.
