Investing and trading are two methods of attempting to profit in the financial markets. Investors attempt to steadily build their wealth over a long period of time by buying and holding a portfolio of commodities, equities, bonds, and/or other investment instruments. An investor buys an instrument and holds onto it in the hopes that the price or value of that instrument increases overtime. Then at a certain point in the future that person will sell this security for a higher price (allowing for inflation) and realise an overall net gain. Investing is then a speculation on long term growth of the price of the security.
Traders attempt to build their wealth on shorter timeframes than that of investors. Traders will buy and sell commodities, equities, bonds, forex pairs and or other securities with the aim of generating a larger return than the buy and hold techniques of Investors over the same time period. A trader will buy or sell a security. If they buy then they are speculating on an increase in the value of the security and if they sell then they are speculating on a decrease in the value of a security. Therefore traders can make profits from increases or decreases in the value of financial instruments whereas investors can only profit from increases in value of the instruments they hold – this is one of the major disadvantages of investing.
Whether a trader buys or sells a security will be determined by them receiving information in line with their trading strategy that confirms this is the correct position to take. By waiting patiently for trading opportunities to present themselves in line with their trading strategy this instils discipline in the trader and ensures the individual is not deviating from a proven approach. This is precisely why mastering a trading strategy is paramount to your success. The same also applies to investing, whether an investor buys a security will be determined by them receiving information in line with their investing strategy that confirms this is the correct position to take.