| A stock trader or a stock investor is an | | | | believe will increase in price aiming to sell |
| individual or firm who buys and sells | | | | it later with earnings. According to the |
| financial instruments (such as stocks or | | | | trading techniques and strategy adopted, or |
| bonds) in the financial markets. | | | | the investing profile of each individual, its |
| | | | trading style can be called value investing, |
| Stock Trader vs. Stock Investor | | | | growth investing, day trading, swing trading, |
| | | | or trend following. |
| The difference between stock traders and | | | | |
| stock investors is that stock investors tend | | | | Expenses, costs and risk |
| generally to buy great companies (blue | | | | |
| chips). They tend to invest for the long-term | | | | Trading activities are not free. First of |
| and count upon compounded business growth to | | | | all, they have a considerably high level of |
| provide their returns. Stock traders, on the | | | | risk, uncertainty and complexity, especially |
| other hand, usually try to profit from | | | | for unwise and inexperienced stock traders |
| short-term price volatility. Sometimes they | | | | investors seeking for an easy way to make |
| try to rely upon the psychology of other | | | | money quickly. In addition, stock traders |
| investors. | | | | investors face several costs such as |
| | | | commissions, taxes and fees to be paid for |
| Individuals or firms trading as their | | | | the brokerage and other services, like the |
| principal capacity are called stock traders | | | | buying/selling orders placed at the stock |
| or simply traders. The stock trader is | | | | exchange. According to each National or State |
| usually a professional. Many people across | | | | legislation, a large array of fiscal |
| the world can call themselves stock traders | | | | obligations must be respected, and taxes are |
| investors or part-time stock traders | | | | charged by the State over the transactions |
| investors, despite having another profession | | | | and earnings. Beyond these costs, the |
| in parallel with their regular trading | | | | opportunity costs of money and time, the |
| activities in the financial markets. When a | | | | currency risk, the financial risk, and all |
| stock trader/investor has clients, and acts | | | | the Internet Service Provider, data and news |
| as a money manager or adviser with the | | | | agency services and electricity consumption |
| intention of adding value to his clients | | | | expenses must be added. |
| finances, he is also called a financial | | | | |
| adviser or manager. In this case, the | | | | Stock Picking |
| financial manager could be an independent | | | | |
| professional or a large bank corporation | | | | Although many companies offer courses in |
| employee. This may include managers dealing | | | | stock picking, and numerous experts report |
| with investment funds, hedge funds, mutual | | | | success through Technical Analysis and |
| funds, and pension funds, or other | | | | Fundamental Analysis, many economists and |
| professionals in equity investment and fund | | | | academics state that because of Efficient |
| management. A very active stock trader who | | | | market theory it is unlikely that any amount |
| holds positions for a very short time and | | | | of analysis can help an investor make any |
| makes several trades each day is a day | | | | gains above the stock market itself. In a |
| trader. Other broad or specific designations | | | | normal distribution of investors, many |
| for different kinds of stock traders include | | | | academics believe that the richest are simply |
| the terms: speculator, hedger, arbitrageur | | | | outliers in such a distribution (e.g. in a |
| and market maker. | | | | game of chance, they have flipped heads |
| | | | twenty years in a row). |
| Methodology | | | | |
| | | | For this reason most academics and economists |
| Stock traders/investors usually need a stock | | | | recommend that investors invest in funds that |
| broker, such as a bank or a brokerage firm, | | | | follow an index in the market, i.e. long-term |
| as an intermediate. Since the spread of the | | | | and well-diversified investments. |
| Internet banking, it is usual to use an | | | | |
| Internet connection to manage their own | | | | Dart Board Method |
| financial portfolios, including ordering the | | | | |
| sell/buying orders, set stop losses prices | | | | Financial journals and newspapers such as the |
| and define buying/selling prices. Using the | | | | Wall Street Journal have done articles on |
| Internet, specialized software and a personal | | | | stock picking in the past. One famous article |
| computer, stock traders/investors make use of | | | | involved a stock picking contest between a |
| technical analysis and fundamental analysis | | | | panel of Wall Street experts, the public and |
| to help them in the decision process. They | | | | a dart board. One member was elected to throw |
| utilize also several advising and information | | | | darts at the Journal's stock page in order to |
| resources based on the Internet and the | | | | select a portfolio. At the end of the |
| media, such as financial/business news and | | | | experiment, the public and the dart board |
| data firms (Reuters, Bloomberg, Financial | | | | both beat the board of Wall Street experts. |
| Times, Yahoo! Finance, MSN Money, AFX News, | | | | Was the dart board more savvy? The dart |
| Newratings, Forbes, BusinessWeek, Hoover's). | | | | board's triumph over the Wall Street experts |
| They exclusively trade on their own behalf, | | | | can be attributed to chance (one could also |
| as a principal, investing money on a share or | | | | attribute the dart board losing to the |
| other financial instrument, which they | | | | experts to chance as well). |