As you take your first step in your decision to enter the stock-trading arena, it is now time to decide what type of trader you may be so as to adapt the correct strategy.

Although we have used the names, traders and investors interchangeable in some of our previous articles, they are two very different roles. While they may both be participating in the same marketplace, they have very different strategies.

Let us better clarify these terms by defining the broad categories of traders that most people fall into.

Investor

The Long Term Investor

An investor traditionally refers to someone who buys and holds positions over a long period of time. They look for long term value in securities and are not concerned about short term profit, losses, or volatility. They seek low-risk growth of their capital, and in return, are willing to accept a relatively lower rate of returns.

Investors usually trades in the stock markets and are concerned about the fundamentals of companies and the economy. Most investors would use their own money to purchase securities as compare to traders who use leverages when trading. Buying stocks is also less time consuming as compared to trading in other markets.

There are even some investors who choose not to focus their time on investing or investment strategy. They either get wealth advisors to help them plan their investments or they simply diversify their investments across a number of different asset classes, creating a diversified portfolio.

Their primary mechanism to achieve wealth is to invest and wait. And this often means a 20 to 50 year time period to be able to enjoy the results of the investments.

Traders

On the other hand, traders focus on the market itself rather than the company’s fundamentals. Traders generally operate on a short time horizon and are looking for short term profits.

Their trades can also last anywhere from several seconds to several weeks. Traders actively manage their portfolios and may be in and out of securities on a daily basis. Day trading is often glamorized as an easy path to riches, but this is rarely the case. Active trading strategies often incur huge costs because of the volume and frequency of transactions.

The Opportunistic Trader

This type of traders do not want a diverse portfolio but look to achieve the much higher returns of targeted investments. They look for an investing edge such as first-hand information or perhaps a hot stock tip.

They often do not rely on statistical or mathematical data, but instead on people’s opinions, news, personal hunches and advice by so-called experts or gurus.

Being in the right place at the right time, and taking a chance on getting rich gives these traders the opportunity of a big break. The returns can be substantial when these traders make the right trades.

Without enough experience, knowledge and a proper investment plan, most traders who are just starting out will fall into this category.

The Specialist Trader

The trader who specialise do not depend on luck or “hot tips” but on experience and education. They are most likely trading full-time for an active income, spending their entire day at the computer.

They would pick a few, and sometimes even a single primary market or instrument, and be an expert at it. The specialist knows his investment area very well and he is able to make money independent of the market conditions. He applies analysis instead of emotion to trading decision.

The specialist trader requires the most time and effort, the rewards are the most profound – both in terms of control over income and the opportunity for financial success.

Conclusion

As a beginner, it is good to have a general idea if you want to be a trader or an investor. You will then be able to plan your investment strategy and approach the stock markets more appropriately.

Having said that, the three categories are only discussed broadly and is not a definitive portrayal of the trader or investor you will be. One could also be both, a trader and an investor. Over time, a trader might change his approach and strategies in the stock market.

TradeHero has a diverse mixed of users. With this guide, you can better understand the types of traders to help you pick and follow a Hero which suits your type of trading.

Some of our users keep their positions open for weeks and even months while others close a position within a few days. You can also check out our tips for finding a trading expert in our previous article.