TRADERS AND INVESTORS — what is the difference?

With the development of financial markets and the increasing availability of trading platforms, more and more people are thinking about how to make money on stocks, cryptocurrencies and other assets. At the same time, beginners are faced with a choice: to try their hand at trading or to choose the path of long-term investing. In today’s Strifor review, we will talk about the differences between a trader and an investor. This will help you choose the right way to manage your capital that matches your personal goals and risk tolerance.

Definitions and main differences

A trader is a person who makes trades for short-term profit. He focuses on price changes, trying to capitalize on fluctuations in the market that may occur over a few minutes, hours or days.

An investor, on the other hand, is focused on holding assets for the long term in order to profit through dividends, interest income and growth in the value of the asset. Unlike a trader, an investor looks at assets through the lens of their fundamental value and prospects.

The main differences between traders and investors are their time horizon and approach to risk. Traders are willing to take higher risks for the sake of potentially quick returns, while investors seek more stable and sustainable income.

Historical context and examples

The distinction between trading and investing can be traced back to the stock market of the 20th century. In the 1920s, when stocks on Wall Street were skyrocketing, many players favored short-term speculation, which was one of the reasons for the famous crash of 1929. This became a lesson about the risks of excessive short-term trading and led to new views on long-term investing that were espoused by, for example, the famous investor Benjamin Graham.

In more recent times, in the 1990s and 2000s, the advent of internet trading and advances in technology gave a new impetus to the growing popularity of short-term trading and attracted a large number of participants to it. However, big investors like Warren Buffett still followed a long-term strategy by investing in companies with good fundamentals and holding their stocks for decades, which brought him a multi-billion dollar fortune.

Thus, history shows that both approaches can be successful, but require different levels of involvement, patience and attitude to risk.

Approach to analysis

Traders and investors use different methods of analysis to determine the best points to buy and sell.

Traders mainly rely on technical analysis — the study of charts and indicators to predict price movements. They use short-term signals such as candlestick patterns and oscillators to identify trends and find the best entry and exit points.

Investors prefer fundamental analysis. They look at a company’s financial metrics such as earnings, revenue, and debt load to assess how promising it is in the long run. Fundamental indicators help investors make decisions to buy stocks of companies that they believe have high growth potential.

Financial goals and planning

For traders and investors, different financial goals require different approaches to planning.

Traders are focused on quick returns and may achieve different goals within a short time frame. This requires a high level of engagement and a willingness to adapt to changing conditions.

Investors, on the other hand, take a long-term approach to achieve goals such as capital accumulation or retirement savings. They are more likely to use diversification and choose stable companies with a proven track record.

Risk management

Trading involves a high level of risk. Traders use management techniques such as limiting losses with stop losses and hedging positions. Traders often use leverage, which can significantly increase both profits and losses.

Investing is also not without risks, but here other methods are used. Investors diversify their portfolio by allocating funds between different assets. Their goal is to minimize the impact of one asset on the overall result.

Ethics and social responsibility

More and more investors are turning their attention to ESG investing (sustainability investing). This is especially popular among those who are focused on long-term investments and want to support companies that consider environmental, social responsibility and corporate governance factors.

For traders, such issues may be less relevant, as they are primarily interested in short-term profits rather than the company’s impact on society or the environment.

Current trends and the future

Technological changes such as artificial intelligence and algorithmic trading are significantly impacting both approaches.

Traders often use algorithms to quickly analyze and execute trades in fractions of a second. Investors use automated systems for portfolio management to minimize the impact of human error and increase the sustainability of long-term strategies.

In the future, perhaps the distinction between trading and investing will become increasingly blurred due to advances in technology and the globalization of markets.

To summarize 

Ultimately, the choice between trading and investing depends on personal preferences, goals and level of risk tolerance. Trading is suitable for those who seek quick income and are willing to accept high risks. Investing is more suitable for those who are focused on stable capital accumulation. The choice between trading and investing is not only a question of strategy, but also of attitude to risk, time horizon and approach to financial goals.

Whatever strategy you choose, Strifor broker can make your trading more comfortable and safe. As a reminder, Strifor is a licensed broker* and a member of The Financial Commission, an organization dedicated to protecting traders’ rights. Thanks to this partnership, each of our clients is insured for €20,000**. Join us, because a reliable broker is one of the most important links in successful trading 🤝

Attention! An investment in CFDs carries the high risk of losing all investments funds.  87 % of retail investor accounts lose money when trading CFDs with this provider. Past investment success does not mean future success.

* 7 Lucky Trading (Mauritius) Ltd, the operator of the Strifor platform, has a license to operate

forex broker No. GB23202670 and is regulated by the Mauritius Financial Services Commission.

** Strifor SVG LLC, the operator of the Strifor platform, is a member of the “Financial Commission” — an independent non-governmental self-regulatory organization for resolving external disputes.