Are you an Investor or a Trader?

Trading and Investing are both related to equity markets but are not the same.

Trading is for making money whereas investing is for creating wealth.

Trading is for now and today whereas investing is for tomorrow.

The former gives you instant gratification whereas the latter gives you delayed gratification.

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What is Trading?

Trading involves a higher frequency of activity,that is buying and selling.

The point is to make profits by taking advantage of price fluctuations.

The idea is to buy low and sell high within a short period of time.

It is a short term process where risk levels are high but so is the potential to make profits.

The risk profile for anyone to consider trading has to extremely high since it is an extremely volatile process.

A trader is not concerned about the fundamentals of the economy or the company, his approach is more micro motivated rather than macro motivated.

A trader is heavily influenced by technical charts and current market sentiments and has nothing to do with the long term prospects of the company he is trading in.


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What is Investing?

Investing is about discipline and patience, the ability to just sit tight.

It is right up there with the most boring of activities and yet the rewards are anything but boring.

You create wealth by holding and spending time in the market and not by buying and selling and attempting to time the market.

It is a long term process that is meant for long term goals.

You don’t necessarily have to be the smartest person in the room, you just have to be more patient and disciplined than the rest.

An investor is more concerned about the fundamentals of the scrip or fund he is investing in, his approach is more macro motivated rather than micro motivated.

An investor needs to have a risk profile that allows him to stay invested for the long haul and is not affected by daily, monthly or quarterly downswings.

Rome was not built in a day but it was destroyed in a day, in investing you cannot generate wealth in a day but in trading you can lose almost everything in a day. 


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Why understanding the difference trading and investing is important?

There has been a huge influx of new participants in the equity market post March 2020.

Equity markets have rallied beyond expectations with a certain degree of pullback in the first half of 2022.

The initial rally along with people being locked up in their homes lead to the inflow of several first time participants in the equity markets.

None of whom had ever experienced a market correction, let alone a crash.

This lead to several equity investors participating with the belief that returns from equity investing is always linear and that the markets behave rationally.

This can be better attested by looking at record number of inflows during the start of the rally and then the massive downturn in numbers in the first half of 2022 when the equity markets faced a correction.

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The new market participants are heavily influenced by:

  1. Daily news
  2. Thoughts of every random stranger on their portfolio
  3. Daily market movement

They are also lured by new investing fads that prop up from time to time in the form of NFO’s & IPO’s.

Many of these IPO’s have historically never generated profits and yet find takers in the new market participants.

All the above factors are exhibited by those who assume themselves to be investors when in reality their behavior is contradictory to the claims.

If you cannot shut out outside noise, track the market daily, are heavily influenced by amateur advice for your hard earned money and prefer instant profits over long term wealth then may be investing is not your cup of tea.

There’s no shame in accepting that but you will pay a heavy price convincing yourself of being someone you are not, both in investing as well as in real life.

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Difference between Investing & Trading



The idea is to let your investments stay put for the long term for capital appreciation.

The idea is to generate immediate profits by taking advantage of the changes in prices.



The risk involved is lower comparatively because the equity markets are more stable in the long run.

The risk involved is higher comparatively because the equity markets are very volatile in the short run.



The time period could be several years or even decades.

The time period could be several seconds up to a month.



An investor is more concerned with the fundamentals of his investments.

A trader is more concerned with the technical side.



An investor is not concerned with daily market news, market movements or the latest trends in the market.

For a trader, he needs to be aware of every minute detail since that will affect his trade.



You invest today so you accumulate wealth for tomorrow.

You trade today so you make profits for today.



As an equity investor, you do not invest for today.

Therefore logic demands that you do not take decisions based on the market conditions today.

If you prefer the returns of today over the potential returns that equity investing can fetch you over the years then may be equity investing is not your cup of tea.

Do not let your ego get in the way of an uncomfortable truth for it cannot compensate for your impending real losses.

Growth in equity investing does not happen over- night but rather over several nights, you can either dream peacefully or let it be your worst nightmare.

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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
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