The three behaviors with money
People see the world differently
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Trading vs investing
Trader Tom and Investor Ian
To get a good picture of trading vs investing imagine Tom, a 30 year old guy sitting in front of his six screens, checking charts, energetically typing on his keyboard, once in a while cursing or screaming yes. Tom is trading. Now picture Ian in his 50s sitting at home in the evening checking on his portfolio. He made his last transaction 6 months ago and now he compares his portfolio with his long term financial goals. Ian is investing.
Trading vs investing
The three behaviors with money
Choosing Your Approach to the Markets
Most investors are neither extreme risk-takers nor extremely cautious savers—they usually fall somewhere in between. Now that you’ve decided to manage your investments on your own, it’s a good moment to think about which approach to the markets suits you best. Generally, investors tend to follow three different styles of behavior when dealing with financial markets.
Work for Your Money
If you’re reading about investing or trading, you may have imagined becoming a trader and making substantial profits through clever market decisions. However, the reality is that trading requires serious effort and discipline.
Successful trading is not just about making a few smart moves. It requires:
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Continuous market research and analysis
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Developing and testing trading strategies
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Careful risk management
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Strong emotional discipline
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Spending significant time monitoring markets
In other words, trading is closer to a full-time activity than a quick way to make money. Traders actively work for their profits by analyzing price movements and taking positions in the market.
Understanding whether this approach suits your personality and lifestyle is an important first step when deciding how you want to participate in the financial markets.
- know a lot about the markets
- dedicate significant amount of time to this activity
- be very diligent
- handle stressful situations very well
Different Ways People Approach the Markets
Trading and investing are not the same for everyone. People participate in financial markets for different reasons, and understanding your motivation can help you choose the approach that fits you best.
Trading as a Profession
Trading can indeed become a professional career, and many people earn their living this way. Professional traders often profit by identifying short-term market inefficiencies or price irregularities.
However, becoming a successful trader usually requires:
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Extensive market knowledge and experience
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A well-tested trading strategy
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Strong risk management skills
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Emotional discipline during volatile market conditions
The path to professional trading is rarely easy. It typically involves years of learning, practice, and occasional setbacks before consistent results are achieved.
Trading for Excitement
If you have ever bought a stock or another financial instrument, you may recognize the rush of checking prices and watching your profit or loss fluctuate. For some people, this excitement is part of the appeal.
However, trading purely for entertainment can be risky. Emotional decisions and the thrill of quick gains can easily lead to impulsive trades and unnecessary losses. If excitement is your main motivation, it is important to acknowledge it honestly and manage your risk carefully.
Making Your Money Work for You
Another common approach is long-term investing. Instead of trying to trade frequently, investors aim to grow their wealth gradually over time.
Historically, studies have shown that stock markets tend to outperform traditional bank deposits over the long term. While it is difficult for individual investors to consistently beat the market, a practical strategy is simply to invest in the market itself, often through diversified instruments like index funds or ETFs.
This strategy focuses on steady growth rather than short-term speculation. It usually requires patience and a medium- to long-term investment horizon.
To follow this approach successfully, an investor generally needs to:
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Commit funds for longer periods of time
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Maintain a diversified portfolio
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Avoid reacting emotionally to short-term market movements
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Focus on consistent, long-term returns rather than quick profits
- be very patient
- have money to invest which you do not need on short/mid term
Trading vs investing
People see the world differently
The three behaviors with money is nice and simple, but the truth is people see the world differently. With other words they have views. You might think that China will do well in the future, or that oil prices will drop, or that XY stock will bounce back this morning etc.
Economics theory claims that the current market price reflects all available information. With other words if it is known that China will do well, people will have already bought China, hence the price is higher. You buy it because you do not believe what all other people say. Look at it this way:
When you start to have views and buy something because you think its price will go up in the midterm you end up somewhere between ‘make your money work’ and ‘play with your money’. These guys are usually called investors. It is a common mistake to think that you are a full investor when in reality you are also playing a bit with your money.
When you are having views on short term price movements (in the next minutes or day) you are somewhere between work for your money and play with your money. These guys are usually called traders. It is a common mistake to think that you are a full trader when in reality you are also playing a bit with your money.
Fine, but what is the point? The point is to decide your preference in trading vs investing you should very much know about yourself what you want to do. All behaviors are fine (yes, even the play with your money). You just need to know what is what and what you want to do.
Trading vs investing
Sum up questions
Ask these questions about yourself and think about what it means? This will help you decide where are you on trading vs investing
- How often do you want to trade and for how long want you to hold the papers? Is it more like investing or trading?
- How much of your overall investment will you handle on your own? What are your main motivations behind these investments?
- Will you be doing trades which you want to close in the next few hours/days? How will you select these trades? Which behaviors do this look like?
- Will you be doing trades which you want to hold to see how far it can go up? How will you select these trades? Which behaviors do this look like?
Do not worry these are tough questions, and we bet your answer will change throughout time. The interesting bit is that you will need different skills for being an investor and a trader. Here are first 10 steps for both.
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