Tuesday, February 21, 2012

Trader and Investor

Traders and investors are two different people. Here are some of the differences.

A trader works for an institution. When you trade on behalf of an institution it changes the mind set. The institution has a large capital base usually the base comprises bullions of Rupees, which gives the advantage of playing with volumes. You must have heard the phrase "Size does matter". This is so true when we relate this to the context of gaining economies of scale. This phenomenon can be seen when a trader faces a losing week after week, there will come a week where the market will get an opportunity to move upward. At that time the trader will have the leverage to borrow and ride the wave to initiate the recovery phase.

In comparison the individual investor will take a lifetime to accumulate the large capital base that institutions bear. With no large capital these investors will have limited options. That means you miss opportunities which will result in low profit gains. So what are these investors doing?
As time evolves everything changes. A change is something that has to happen, it is inevitable. Flexibility is the ability to cope with change. Investors are now smart, flexible and have acquired the important skill in trading, "Patience".

Investors have learned these qualities by observing traders. Traders are given limits to trade. There are also given stop loss limits which intimates the trader to offload the position if the limit is breached. Traders have to follow a strict code of conduct and follow trading ethics to ensure corporate governance. All of these rules and regulations ensures that traders have to be disciplined and patient in the market.  Investors have adopted these strategies in their practices. This resulted in increased investor base.

In the world today there are many individuals who have invested in one way or another, whether it is the real estate, stock market or forex. Investing is a natural phenomenon that has evolved and increased manifold with the development of financial markets worldwide.

It is said that in an average lifetime, the market gives about 8 to 10 opportunities to make that fortune you are always seeking. The trick is to observe, learn and wait. Of course you should have the capital to invest. You should also limit yourself by saying that this is the X profit or loss I can expect from my investment. Once you have achieved your desired level it is time to exit the market and enjoy your capital gain.

Happy Trading