Investor vs Trader – Who makes more Money from Stock Market?

This is a million-dollar question being debated for years – Who makes more Money from Stock Market? Investor vs Trader. While the answer to this question depends on one’s perception we’ve tried to simplify the thought process and came up with our opinion in this blog post.

Investor vs Trader – The Key Differences

There are two distinct personas of people involved in the stock market:

  • An Investor who buys and hold the stocks for a long term in expectation of capital appreciation
  • A Trader who buys/sells stocks in the short term (as short as a day) and makes quick profits/losses

An investor mostly buys stocks looking at the fundamentals of the company like quarterly profits, debt to equity ratio, management strength, etc.

And a trader looks at technical indicators, price action, or news to predict the direction of the market.

There are no flaws with both approaches, but choosing one of them depends on your personality and risk appetite.

Also Read: Technical Analysis vs Fundamental Analysis: A Detailed Comparison

Who makes Real Money? Our Opinion

The majority believes that only investors generate real wealth which traders lose money eventually.

However, that’s not true!

A trader who consistently follows his system can make far more profits than an investor.

Let’s take an example – 

Suppose an investor earns 20% per year with an initial investment of 10000, and he makes a monthly contribution of 5000.

The trader starts with the same initial capital but he targets 3% per month.

Below is the final capital (pre-tax) for both at the end of 10 years:

Investor vs Trader

As you can see, a trader can potentially make much more than an investor. There are 3 main reasons for the same:

  1. A trader can benefit from monthly compounding (sometimes weekly too) against an investor who mostly benefits only in a long term.
  2. A trader can adjust his strategies dynamically, he can short sell, do intraday trades, or trade in F&O markets to achieve a 3% return per month. While the average returns of investors vary from 12-25% per annum.
  3. A trader is relatively immune to overnight risks or black swan events. While an investor can potentially see larger drawdowns due to such events.

But how to make 3% per month profits?

The answer is simple! Just follow your system religiously. There are several readymade systems available that can even produce 10% per month, but it’s just that people give up after few consecutive losses.

You can find Amibroker based backtested systems at this link, or you can also have a look at the Tradetron marketplace for automated systems.

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