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Trading and Investing - What's the Difference?

Welcome Back!

**Keep in mind I am a retail trader and none of this is financial advice, just my interpretations and my understandings.

When I first started buying and selling stocks and options, I read and heard lots of different terms: Investor, Trader, Day Trader, Stock Trader, Options Trader, on and on, with different iterations. I could never figure out the difference, and it always seemed fairly abstract. Over time, I have developed my basic understanding of what the difference between Trading and Investing means to me, and it all comes down to three things; How much time you want to spend researching, length of time you plan on holding, and how much expected profit over time.


When I was researching how to break into buying/selling and the stock market as a whole, I read over and over about how 10% annual returns is amazing, and if you can do that, you can be rich over 40+ years of "Investing." I was sitting there, flipping back and forth between the articles and my account, wondering how my $3,000 at 10% annually would ever turn into something worth the time investment. I realized that "Investing" was not my style, I was not mentally able to buy and hold a stock, over years, hoping that it would eventually yield me 30% returns. It felt incredibly slow, and I didn't have enough money to make the growth meaningful enough. I hate the idea of "needing" to have "enough" money to retire when I am 65 years old, I want enough money to follow my passions now, and do with my life what I want to do. This is a wonderful money making tool for someone who has plenty of money (you see ads for "If you have $500,000, we can make you more"), because you don't have to do anything, and there is very little risk, it is the most passive style.

ELIM5 (Explain like I'm 5) - If you do not want to follow the stock market closely, but do want slow, consistent returns on your money (Lots of Money), this is the strategy for you, or your grandpa. You are probably not concerned about money on a monthly basis, or do not have an interest in tracking the markets. You are typically buying to hold stocks for 10 years+.

Overall - Passive, slow returns, more conservative, and requires lots of money upfront.


When I began researching options and leverage, I realized that when I am actively checking the market and buying and selling, I am "trading." To me, even though my main focus when Buying Calls is to purchase them at least 1 year out, I never intend to hold them that long. I want the protection of time, but the leverage of options, and I have found a fairly happy medium, at least for the time being. When I am "trading" options, I am looking for market trends, the next "big thing," or any other situation that signals a company might be going up. I could buy a contract today that expires 1 year from today, but sell it next week, without thinking twice. It is all about buying at the right price, avoiding inflated evaluations, and not chasing the memes (all the time). This style requires much more focus on the markets and a willingness to devote time into choosing and monitoring companies. You also can't be afraid to get into something new, or get completely out of something you like, it is all about your profit/loss and your entry and exit points.

ELIM5 - You wake up and check the market every day. The last thing before going to sleep, you check your holdings and check the futures market, maybe even foreign Stock Exchanges (I'm glued to on the Hong Kong Exchange each night). You are actively looking at companies, tracking prices, and buying/selling different companies weekly. You are not content with 10% annual gains, and the money you make doing this has meaning for you. You are probably, at least mildly, concerned about finances monthly and you may or may not be working in the financial field (I do not), but the market interests you just as much, if not more than your "Real Job."

Overall - Higher potential gains, active market participation, low capital requirement to begin, and considered to be more risky.

So What Now?

I consider myself to be an active trader. I have no troubles buying any company, in any sector, if the time and price is right. I buy and sell regularly, but that also means I may hold a Call for 9+ months, again, it depends on the price and your returns.

I spent about a year trying to figure out "investing" and what I discovered is that for this stage in my life, I cannot be an "investor." I'm not there yet. I need more capital to create more wealth, and no one is giving out free money, we have to generate it ourselves. Options have given me the opportunity to place my money on companies and across sectors I think will thrive, and all without requiring hundred of thousands of dollars upfront.

So I would propose this question to anyone reading this: Are you a trader, or are you an investor?

Let me know what you think and I'll be happy to respond.


Kevin Parker

Retail Trader

Dreamer of Financial Freedom

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