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Stock Traders and Stock Investors

April 10, 2017

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The difference between stock market traders and stock market investors is often confusing. Here are some brief definitions and examples of each type of trader.

According to Ian Harvey at Investopedia (downloaded on 4/10/2017), Stock traders tend to have a short-term time horizon and buy or sell stock based on the market and its characteristics rather than company. Traders consider such things as stock price patterns and the technical analysis of a given stocks price movements, factors that might cause a sudden change in supply or demand, changes in market or stock momentum, and possibly even political factors. A professional who engages in the buying or selling time-limited call or put option contracts on stocks, commodities, or foreign exchange is an example of a trader.

Stock investors, on the other hand, tend to focus on company fundamentals such as top line sales and revenue growth and bottom line earnings per share growth. They will also tend to look at ratios such as the price of a stock relative to its earnings (its PE ratio) or its price to book ratio, etc. Also, investors will often have a longer-term strategy such as buy-and-hold. Warren Buffet is an example of an investor.

Traders tend to take the other end of trades from investors and thereby provide liquidity in the stock market. Thus, traders perform an essential function in the stock market.

More about Gary Marché

I have a PhD in economics with emphasis in International Economics, Comparative Economic Systems, Open Economy Macroeconomics, Public Finance, and Policy Analysis and Program Evaluation. I am also a successful life-long investor . . . and hope to continue to be.