Investors and Traders are both vitally important parts of the financial market. Investors give stability to the market and don’t care much for the day-to-day swings. Traders only care about the day-to-day swings and have ways to make money either way whether the prices are going up or down. So which is better? What should you do?
Only you can decide what you should do. The market needs both investors and traders. One would be in trouble if the other didn’t exist.
Investors leave their money in the market and in the stocks they have invested in. If there were only investors, you would have a hard time selling your shares when the time came. Traders give the market liquidity and provide investors with a sense of comfort knowing they can sell their shares at any time and there is always a trader standing by ready to buy them.
Traders need the investors to provide stability to the marketplace. Image if every share of every publicly traded company was in play every day. The swings would be outrageous and horror stories would far outpace the triumphs, scaring off would-be traders. The stock market provides a way for companies to raise cash. If no one was willing to buy shares of a new IPO, the economy would stop growing, at least at the rates we have become accustomed to.
Trades give the market liquidity and it gives investors confidence that they can sell their shares when the time comes. Without liquidity in the markets, investors would not put their money in because they would not be sure when, or even if, they could sell their shares and get the money back out. Traders buy and sell billions of stocks every day. Most shares are sold to and from other traders, but some to investors who will hold longer than the traders. Knowing that traders want to buy and sell these shares every day gives confidence to investors that when they decide to sell be it a week, a year or a decade, they know there will be a trader waiting to buy the shares the investor no longer wants.
Which are you? Which do you want to be? Do you even have to choose?
Good news, you don’t have to decide. I am both a trader and an investor and there is nothing stopping you from doing the same. I have multiple accounts and use each one differently, one for investing, one for trading and one for both. htere are long-term investing strategies and short-term trading goals. Here is how I use my accounts.
My IRA (Individual Retirement Account) is my investing account. Currently, I have about 75% in an S&P 500 index fund. The other 25% is in a cannabis ETF. ETF, Exchange Traded Funds, are a great investment tool and will help you capitalize on the growth in the market without taking on risk that individual stocks contain. Now, with less risk comes less reward, but that’s OK. This account I am growing quietly for my retirement and I want it to stay healthy even if the rest of my trading efforts crash and burn. Learn more about ETF’s here. Every week I contribute $105 to this account to maximize my tax benefits.
I use my Robinhood account for trading only. Nothing I hold here is for long-term gains. It is for short day trades and swing trades only. I am trading with small stocks only as I attempt to take a small investment of around $9 and see what I can turn it into. The second purpose of this account is to train me to make the right moves and apply those skills to my last account. I share every trade I make as I make them, follow me on Twitter for live trades!
My Etrade brokerage account is used for both trading and investing. I am holding two stock, LOW and SGMD for long-term growth potential. You could buy LOW for $14 per share back in 1999 and it continues to grow today. This week it is near $96 per share. SGMD is a long-term hold for me because of the huge potential upside. SGMD supports the legal cannabis industry and I expect it will explode in the next several months to years. The rest of the cash and margin (borrowed money) I use for swing and day trades.
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