I have heard a lot of people call themselves investors whereas they just act as traders. What is the difference between an investor and a trader. A lot of controversy has been going about this two for a very long time and even people in it cannot differentiate it.
Let me do a little bit of explanation here, so we can understand the difference the difference between this two set of things and the people involved. Investment and trading, Investors and traders.
The Difference
Investors
Investors are people who buy commodities and things for a very long period of time banking on the growth of their investment. They buy things for a considerable period of years (Many years to be precise) with the hope their their investment will increase in value. Most investors do not buy stocks, they buy the stocks company. For example, Warren Buffet buys companies that sells stocks and not often the stocks. He buys what the stocks represents which is the company itself. He buys everything about the company; the team, the products, and the market presence. He knows how to buy and sell companies against the stock market, he is good at that.
Traders
Traders are people who buy stocks, options and future contracts. They are price oriented rather than management and quality oriented. They only care about two buttons which is the but and sell. The do not acquire visible properties, products or companies. What traders do is buy risks at low price speculate the market very well and then sell the risks to another risk taker at a high price. The risk taker then bears the risk of speculating the market again.
Unlike traders who buy future contract and sell it for profits, investors buy them to hedge their companies from risks in price changes. A company buys contracts of raw materials such as oil, copper, aluminium, gold and so forth so as to protect themselves from future increase in price.
The act of buying or selling futures contracts to prevent business risks which may arise due to a change in price of raw material or fluctuations in foreign currency exchange rates is known as hedging.
An transportation company knows how valuable to price of oil is to their business as well as how an increase in the price of oil can lead to an increase in the price of tickets and transport fare. When the price of oil goes up, the company has to increase the price of tickets as well as transport fare which will lead to less passengers and bad business. In other to prevent this, the company will hedge in the oil market and only traders sell to them. Traders buy to sell for the price, while investors buy for the value.
An investor buy businesses and bonds for a long time, a trader do it for a short while