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TABLE OF CONTENTS
Should you be a trader or investor?
TLDR; it depends! Would you prefer steady growth over long period, or that adrenaline pumping experience? There are many differences between the two, tho here I’ve listed out 8 things you should consider before making the decision!
1. Time Commitment
Trader: Trading, especially day trading, requires constant monitoring of the markets and quick decisions. If you have the time and willingness to immerse yourself daily, then trading might suit you.
Investor: Investing typically requires less day-to-day management. Once you’ve done your research and made your investments, you can generally step back and review them periodically.
Or, in short, trading is more time consuming than investing!
2. Risk Tolerance
Trader: You must be comfortable with the idea of potentially losing a significant portion of your capital quickly. Trading can be volatile, and there’s a risk of substantial losses.
Investor: Investing, especially with a diversified approach, tends to be less risky over the long term. Still, investors must be comfortable with market downturns and the idea of possibly waiting years to recoup potential losses.
Both have their own risk! But in general, traders find opportunities in high volatility, hence they are prone to suffer major loss if not careful! 🤯
3. Capital
Trader: Depending on the markets you’re trading in, you might need substantial capital. Forex and futures, for instance, require significant leverage, while stock trading might require a minimum amount to avoid pattern day trading rules.
Investor: You can start investing with a smaller amount of money and build your portfolio over time.
If you’re thinking of making money quick with small capital, trading with margin is the way to go – but I won’t suggest this to beginners. Why? Because the risk, to many, is insufferable 🥶!
4. Emotional Resilience
Trader: Requires a high level of emotional discipline. You’ll need to be able to make decisions quickly without letting emotions drive them.
Investor: Requires patience and a long-term view. You’ll need to stay the course and not be swayed by short-term market fluctuations.
Both have their own set of emotional challenges! Challenges to investor is to stay in the market for an extended period, sometimes decades to capture profits – to put it simply, you need to be patient and wait. Trading, on the other hand, the challenges are sticking to its strategy, and to stay calm no matter how the market fluctuates.
5. Knowledge and Research
Trader: Often uses technical analysis, which involves studying price patterns, charts, and other market indicators. It’s crucial to be updated on market news that can affect short-term prices.
Investor: Typically focuses on fundamental analysis, which involves understanding company financials, industry trends, and broader economic factors.
They are like different subjects – contexts are different but require the same learning attitude!
6. Goals 🎯
Trader: Aims for short-term profit through capital gains (the price difference between your buy and sell).
Investor: Aims for long-term wealth accumulation and possibly income through dividends or capital gains.
7. Costs 💰
Trader: Trading frequently can lead to higher transaction fees, spread costs, and potentially unfavorable tax treatment for short-term gains.
Investor: Buy-and-hold strategies generally incur fewer transaction fees and may benefit from favorable long-term capital gains tax rates.
8. Learning Curve
Trader: Requires a steep and continuous learning curve due to the dynamic nature of trading strategies.
Investor: While there’s still much to learn, especially when starting, the pace might be more gradual than with trading.
One more reason I prefer investing – you suffer first and enjoy later!
Which one works for you?
To determine which route is best for you, consider starting with self-assessment:
- Interests: Do you find excitement in the idea of quick trades, or do you prefer analyzing companies and sectors for long-term growth?
- Skills: Are you good at quick decision-making under pressure, or are you more comfortable with thorough research over longer periods?
- Lifestyle: Can you commit to monitoring the markets regularly, or do you prefer a more hands-off approach?
My takeaway
Hands down, I’m an investor, never a trader, simply because tbh, the time you need to spend trading makes it no longer a passive income – you need to actively check the market time to time, sometimes at 4am in the morning! But that’s just me, you should make decision for yourself, whichever it is, may I say, good luck! 🍀
If you are interested to start investing, I have a full video guide on exactly how should you start! You’re welcomed :))
Word of the Week: VIX (Volatility Index)
Definition: The VIX, often referred to as the “fear index” or “fear gauge,” is a measure of the stock market’s expectation of volatility over the next 30 days. Introduced by the Chicago Board Options Exchange (CBOE), the VIX provides real-time insight into how much traders and investors think stock prices will fluctuate in the near term. The VIX doesn’t indicate the direction of the market (whether it’s going up or down). Instead, it reveals the anticipated intensity of price swings. It’s calculated using various data points from S&P 500 index options, aiming to capture the market’s prediction of upcoming volatility.
A high VIX value indicates more perceived volatility and, consequently, more uncertainty and fear among market participants. This often correlates with bearish or downward market trends. Conversely, a low VIX suggests that market participants anticipate less volatility, reflecting more stability and confidence in the market. This usually corresponds with bullish or upward market tendencies.
How should we look at VIX?
- VIX value below 20: This typically indicates a period of relative calm or complacency in the market. Investors are not very concerned about significant price swings, and the market is considered to be stable.
- VIX value above 20: When the VIX rises above 20, it suggests that investors are seeing increased risk. A higher number signifies rising fear, indicating that investors expect significant price movements within the market over the next 30 days. During market crises, the VIX can skyrocket to levels above 40, 50, or even higher, indicating extreme fear and highly volatile market conditions.
- VIX value around 30 or higher: When the VIX reaches 30 or goes beyond, it is often a sign of increasing panic or fear in the market, usually accompanied by steep market declines. These levels tend to occur during significant market disruptions or crises. Historically, a VIX above 30 might come with a recession.
Limitations
While the VIX is a valuable tool, it’s not infallible. It’s based on current option prices and their implied volatilities, which can be influenced by external factors. It’s crucial to interpret the VIX in conjunction with other market indicators and not use it in isolation to make investment decisions.
Key Economic Dates:
- 25th October: Fed Chair Powell Speaks
- 26th October: GDP Advance Estimate (Q3), Initial Jobless Claims
- 27th October: Core PCE Price Index (Sep)
What I’ve been reading:
Here are the top stories that caught my eye:
You’re all caught up!
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Cheers,
Ziet
