So, who are Traders and who are Investors?
Before I actually started trading, I asked myself – Am I here for trading or for making investments?
And, I am sure there are many others out here who have been thinking that whether they are traders or investors (or should I say they are still thinking what they should be!!).
Before you categorize yourself on the basis of for-how-long-you-will-risk-the-money-basis, let us understand what exactly they (traders and investors) are. And for that one should know the time periods in the stock markets.
The period for which you keep a share bought with yourself defines whether you are a trader or an investor. These time periods are of 3 duration – Short term, Mid-term and the Long-term. though stock markets have not defined any fixed time length for these periods, but they generally follow these ranges (these can be different for different people):
Short Term: Less than 6 months
Medium Term: 6 months to 1 year
Long Term: Anything that is more than 1 year
Traders are those people who put their money in the markets for either short term or medium term. They are here for making the money from ups and downs of the stock prices. Whereas, investors are those people who invest mostly for long term. And they make Capital Gains.
The motive for both, the traders and the investors is to make investment in the stocks and gain from the change in price of stocks. The investors do also get to earn from the dividends paid out to them for holding the stock. (Traders can also earn through dividends, but that is not the primary method of earning for traders, except through dividend stripping). The traders take advantage of the fluctuations in the stock prices, they sell at high prices and buy at low prices.
The other difference between traders and the investors is that the traders follow mostly the technical indicators and the price movements to determine which stock to buy (or sell) and when to buy (or sell). Whereas, the investors are more concerned with the fundamentals of the company they are planning to invest in.
Fundamentals refers to the financial and operation performance of the company. The investors invest their money in those companies who are expected to perform well, so that in future their prices can rise on the stock markets and they can earn profits.
There is another important aspect related to these categorization and that is about Tax. According to the India’s tax regulations, the traders (anyone who has made profit from selling the stocks within an year of buying it) are liable to pay Tax on the profit earned from the sale of stocks. The long term investors are not liable for any tax on profits earned from sale of shares.
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