From Robin Lofton,
Your Guide to Forex Trading.
FREE Newsletter. Sign Up Now!

Traders versus Investors

Many people enter the market as an investor. They buy and hold currencies, hoping that they will appreciate in value. In other words, they are always looking for the market to go up. The typical investor aims to buy low and sell high to make a profit. Some of these people will leave the investing game and turn to trading.

Many people who think of themselves as traders are, in fact, continuing to act like investors. That can cause serious problems because trading and investing are very different activities, which require a different trading mentality. If the trader doesn’t stop acting like an investor, many good trading opportunities can be lost. This also leaves the trader open to additional risk as positions are held longer and exposure increases.

Like the different types of traders such as range and trend traders, the different types of market participants like traders and investors must know their role and act accordingly. Traders simply do not act like investors and vice versa. Trading requires a different set of thought processes that enables a person to view a trade simply as a profitable endeavor.

In many ways, the great advice and strategies offered by market experts such as Warren Buffett and William O’Neill from Investors Business Daily simply will not apply to traders. They are investors, not traders. Mixing the roles can lead to diminished trading potential and reduced profits. Let’s look at differences between traders and investors.

Common Characteristics of Traders

• Traders enter a position to make money.
• Traders will short sell a currency.
• Traders will hold for a short period of time.
• Traders use technical indicators and charts.
• Traders cut losses.
• Traders take profits quickly.

Common Characteristics of Investors

• Investors will buy and hold.
• Investors enter long (or buying) positions.
• Investors will hold for a long period of time.
• Investors focus on fundamental analysis.
• Investors are not concerned with short-term losses.
• Investors let profits accumulate.

There is definitely a difference between traders and investors. This is especially true in the Forex market. Most participants in the Forex market are traders.

Yet many people who want to be traders are really acting like investors. This can cause major problems leading to frustration and lost profits.