What makes a trader different from an investor?

Julie Brownlee, Fsp Invest, 11 Jun. 2014

Tags: trader, investor, trading, investing, what is a trader, what is an investor, difference between trader and investor,

You’ll have heard the words investor and trader bandied about. But what exactly is the difference? Which category do you fall into? Or are you a bit of both? Let’s take a closer look at the major differences…

What is a trader?

Generally a trader is someone who gets in and out the market quickly hoping to make quick profits. In the majority of cases this will also involve the use of geared products, such as single stock futures and contracts for difference.

For example, a trader will put a trade on with a view of keeping it open for the short-term. This could be anything from a couple of hours to a few weeks.

A trader is more likely to take on higher levels of risk.

What is an investor?

An investor is someone who puts money into the stock market or other investments with a more long-term view.

For example, an investor will buy a portfolio of shares with the view of holding these shares for a minimum of five to ten years.

An investor is less likely to take on high levels of risk.

So what are the differences between a trader and an investor?

As you can see above, the major differences are the length of time in the market and the instruments used. And this means the risk levels undertaken are higher by a trader than an investor.

SARS also treats the tax payable on gains differently depending on whether you’re an investor or a trader.

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Gains made by traders form part of their income for the year and as such income tax may be due. Longer-term investors may have to pay capital gains tax on their profits.

Perhaps you can ‘label’ yourself with one of these descriptions. Or perhaps you’re a bit of both.

So there you have it, what makes a trader different from an investor.

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