some people may use these terms interchangeably without giving it much thought
of what each entails. Advantages can be found in both ways of growing your
money, neither is better than the other – they have different roles.
But when it comes to growing your wealth in the forex market, trading is usually
the way to go due to the unique aspects of this market.
Value ownership
Investors are concerned with acquiring the ownership of the financial instrument;
they have the confidence that the instrument will continue to rise in value. They
tend to “buy low and sell high”. For example, when they see that the stock price is
going down, they may see it as a good opportunity to buy and own the stock
‘cheaply’ so that they may profit when the stock goes back higher in the future.
Traders, on the other hand, do not have much concern with the buying and owning
of the instrument. They exhibit the same ease with either longing (buying) or shortselling
the instrument. Unlike investors, traders are more willing to buy ‘high’ in
the hope of being able to sell even ‘higher’, or short-sell ‘low’ in the hope of being
able to buy back later at an even ‘lower’ price.
Time frame
Investing usually entails the “buy and hold” concept, whereby an investor’s goal is
to acquire a financial instrument and to hold it for medium to long term, in the hope
that the instrument will rise in significant value after a certain period of time.
Trading couldn’t be any more different. In trading, a trader’s main goal is to profit
whichever way the market goes, whether upward or downward, within a shorter
time frame. While there is short and long term trading, the holding period rarely
extends beyond more than a few months, or longer than a year.
Getting in
Serious investors tend to buy an instrument based on the underlying fundamental
reasons. For instance, savvy stock investors will analyze the background of a
company, pour over its quarterly earnings report, assess the company’s reputation
and strength in the particular industry sector, and assess the potential of its products
and the track record of the management team. Traders, however, tend to look for
high-probability trade setups using technical analysis as their favourite tool, and
many of them also incorporate market sentiment into their trading decisions. Short-
term traders are quick to recognise changing market trends, and take advantage of
price swings in the market, whether in range-bound or trending environments.
Getting out
The “buy and hold” mentality of investors tends not to deviate far from “buy and
forget”, as many investors almost have zilch idea of when to get out of their
investment when things do not go well. Many stock investors are left with
worthless stocks as they do not have stop-loss boundaries or know when to cut their
losses. While there are also many traders out there who do not have risk
management rules in place, traders overall are generally more aware of proper risk
management than most investors. Whether or not they translate these rules into
practice is another thing altogether.
Source: 7 Winning Strategies for Trading Forex: Real and Actionable Techniques for Profiting from the Currency Markets
