Who will earn the most, an investor or a trader?
Investing and trading are two different methods of profiting from the financial market. While investing is a way of building wealth by buying and holding a portfolio of stocks for a long period of time, trading involves frequent buying and selling of stocks, profiting from sudden changes in the price, largely influenced by demand and supply factors and general market sentiment. First of all you need to understand the difference between Traders and Investors.
The difference between Traders and Investors
Traders buy stocks not keeping for long, they buy if decent profit come on same day they can sell and enjoy the profit. They don't believe on compounding effect of their capital. They take higher risk on their investment.
Traders are focused on generating profits and cash inflows by taking advantage of price differentials. Sell for more than you bought it for. If they make money great, losing money is also part of the territory. There is no residual wealth in terms of asset accumulation.
Investors buy stocks and forget for 10 to 20 years. They don't check everyday profit or loss of their stocks but they believe in portfolio building. They keep buying stock for value unlocking of that. They know the real power compunding effect of their capital. Investors make money in two ways: Capital Appreciation and Dividend Gains.
By investing in shares, one can expect to earn through capital appreciation, i.e., on the gains made on the capital (principal invested) when the share price rises. There is, however, no guarantee of capital appreciation. The probability of the market prices remaining lower than the buy price always exists.
Apart from capital gains on shares, investors may expect income in the form of dividends. A company distributes profits to its shareholders by declaring partial or full dividends. In most cases, the company partially distributes profits and keeps the rest for other purposes, such as expansion. The dividends are distributed per share. If a company decides to give Rs 10 per share, and if the face value of the share is Rs 10, it is called 100 per cent dividend.
Who makes more money, traders or investors?
In the short term, a successful trader can earn more and get a good profit. However, in the longer term, it will depend on the win/loss record of the trader. A successful investor can accumulate considerable wealth through careful investing and risk management over a period of time.
Trading Vs Investing: How to choose?
The biggest question now is how to choose whether you should be a trader or an investor? There are no straightforward answers. To understand which method of money making suits you better, you need to analyze following traits about yourself:
Analyze your risk appetite: If you have a relatively lower risk appetite and cannot digest huge losses, investing is a better option for you.
Time commitment: The second deciding factor is how much time are you willing to give to your investment. If you are the ones who always keeps an eye on the market, and loves doing that, then you can be a trader. On the other hand if you are one of those who just dont want to work hard and let money do the work for you, then investing is a better option for you.
How do you understand the market: The third factor that decides whether you are a trader or an investor is how you understand the market. If you are better in identifying the chart patterns and can analyze the behavior, trading could make you really rich, on the other hand if you have better understanding of businesses and can analyze financial statements in a better way, then investing is the way for you.
Do not make any hurry in either trading or investing find advantages and disadvantages of both and take decision wisely. Find some times do your own research and then start small.
