How to Tell Whether You’re a Trader or an Investor

Most people who put their money at risk in the financial markets are either traders or investors. Of course, it’s not as cut and dry as that because there are all kinds of combinations.

For example, it’s pretty common for people to have two brokerage accounts, one for short-term activity and one for long-term. On balance, however, the vast majority of profit-seekers lean heavily in one direction or the other. Which one are you? Check out the following key features of the different styles to answer the question for yourself.

Budget

It’s not a hard and fast rule, but if you are intending to speculate and have limited financial resources, trading is usually the preferred strategy. That’s not to ignore the millions of wise, patient investors who deposit $50 per month into their accounts and slowly increase contributions as their incomes rise. But one of the main reasons people opt for trading has to do with leverage. For example, most forex trading providers allow account holders to use leverage amounts; the exact level available might depend on the regulatory jurisdiction of the broker. That’s just one reason that customers with smaller bank books tend to try their hands at foreign exchange. Those who have large sums of money available for speculation can afford to use little or no leverage when purchasing stocks, bonds, and other typical long-term instruments.

Time Horizon

Are you looking to make profits over short time frames or long? If the former, you are most likely a trader. Consider the fact that some people invest with an open time horizon, or one that is only focuses on providing for post-retirement years. If you’re in your twenties and socking money into a self-directed IRA brokerage account every month, you are certainly not of the quick gains mentality.

Risk Level

Those who buy and sell forex pairs usually make round-trip transactions several times per day. Their money is exposed to risk on a daily basis and they stand to make large gains or losses at any time. Conversely, if you purchase only blue-chip stock shares in hopes of earning a decent rate of return within a decade or so, your risk level is very low. Besides, you’ll probably not even follow the ups and downs of the economy because you simply don’t need to.

Time Commitment

Do you enjoy sitting at your computer for several hours each day studying the market, making trades, checking your profit targets, and generally immersing yourself in all things market-related? If so, you are likely in the trading column when it comes to personality types. Many forex enthusiasts spend between two and eight hours every day wheeling and dealing, monitoring their favorite currency pairs to find quick profits on sharp price changes.

Investing, on the other hand, requires as few as one or two hours per month. After the research phase is over, most people who seek to earn profits through investments can sit down, place their buy or sell orders for the month, and forget about the market for 30 days. When your goal has a long-time frame, there’s no need to glue your eyes to the price charts.