When you first come to Forex community, you will hear the terms “Forex Trading” and “Forex Investing” used interchangeably by so many mentors and gurus. In fact, they are two very different activities. Although Forex Traders and Forex Investors buy and sell currencies in the same marketplace, they perform two very different tasks using very different strategies. However, both of them are very important for the market to function smoothly. So I wrote this article to help you guys to identify who you truely are when you engage in the toughest market in the world – a trader or an investor.
The primary goal of a trader is to gain profit from the movement of Forex market. They will try to predict which way the price will move in the future. That’s why they care about the supply and demand as well as the factors that affect the supply and demand. An investor has a different point of view. They always find the opportunities that will generate stable passive income with as low a price as possible. So what they really care about is how strong a currency is, how much will they get paid if they purchase such currency (the interest rate) or how much cost do they have to pay annually to lend such an amount of money. In addition, Forex Investors also pay attention to the Forex Funds to seek for the best Forex Funds to put their money on.
2. Traders have to work hard to make money. But who are they working for? – themself and Forex Investors.
Traders have to observe the market continuously as soon as the market opens. They read Bloomberg everyday, watch the price chart every 5 minutes or more – the time interval depends on what trading style they employ. They also suffer from a lot of psychological and health problems. Even the best traders such as Jesse Livermore made mistakes and at the end of his life, he lost all of his money – 7 years later, he commited suicide and he described his life as a failure in his note. So if you decide to be a trader, you have to do the meditation everyday or something kill your emotions in order to maintain your trading performance. Become a profitable trader is a very long and painful journey. Only a few candidates have longterm success in the market.
Investors are the ones who choose Forex Traders to work for them. They share with traders the success fee to encourage good traders make more money. All they do is to choose the best fund among thousand of Forex managers world wide and collect passive income at the end of every month. Nowadays, with the development of Internet and computer science, expert advisors become very popular in the Forex market. Instead of investing in good traders who still have psychological risk, Forex Investors tend to seek for stable forex robots or forex expert advisors which eliminate all the emotional decisions. One of the big dangers in Forex trading is when a trade goes wrong and the trader decides to hold a position until things “come right.” With a Forex robot, this danger can’t happen. If you are a Forex Investor, you will have higher chance to win the market in the long term than to be a Forex Trader because what you care is the trading performance, not the market.
3. Investors hold position for months, Traders hold position for minutes (day traders)The investors prefer buy and hold strategy. In Forex market, this buy and hold strategy is usually the Carry – Trade strategy in which Forex Investors use the difference between the interest rates of two different currencies in order to make money.
Traders purchase currency pairs with a view to selling them for a capital profit. They have no intention of obtaining an income from dividends or holding on to currencies for the long term. A day trader can trigger and close a position in several minutes. So traders have to pay higher fee than investors because their trading volume is much bigger.
4. Investors prefer fundamental analysis, Traders prefer technical analysis.
The Investors care about the long term perspective of a currency’s power. They will use fundamental analysis to evaluate the strength of the country economy and try to predict the longterm trend. They generate profit via interest rate and the longterm movement of the currency’s price.
Forex Traders prefer following the trend until it ends. They use technical analysis to find the retracement and the continuation pattern. They also trade the range-bound market using support and resistance level. In other words, they make the Forex market more liquid.