Investors buy asset. Example , house for rental income. Thus investor buy a share because the asset delivers an income stream.
He is concerned about his return on capital as dividend rate.
He start to caluculate his returns based on the dividend rate of return based on the original price.
If the asset price fall, but the dividend remains the same , he see no reason to sell.
If the price rise dramatically but dividend remain the same, he may sell to reallocate his money for a higher returns.
Traders buy a product from a supplier and sell at a higher price to a consumer.
His income come from the diffrence between the two prices.
The successful trader buys goods that he know others want and could get him a higer price.
Investor reallocate their asset for a higher return with the same level of risk. Example, if the current price of a share can give you higher dividend in another share, assume both shares give the same risk level, investor sell their current share and buy into the more profitable share. This situation might even result in a lost from the original amount invested.
Traders trade. Thats means to say the profit come from selling for a price different. He sell if the share do not go in the direction he wants and buy into another more potential. Its the same as if you trade perishable goods like foods. If you dont sell those about to turn bad, you might need to throw them away whereby you got nothing back.
What about antiques ? Most buy antiques and take their time to sell. Are they a trader or investor?
If you buy into a company that do not give dividends, but you believe it will grow and give you high profit in the long run, are you investor or trader?
To me, as long as you need to sell inorder to get the profit, its a trade. Its a matter of long term trade or short term trade.
To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future. In finance, the expected future benefit from investment is a return. The return may consist of capital gain and/or investment income, including dividends, interest, rental income etc. https://en.wikipedia.org/wiki/Investment
Trade, or commerce, involves the transfer of the ownership of goods or services, from one person or entity to another, in exchange for money, goods or services. A network that allows trade is called a market. https://en.wikipedia.org/wiki/Trade
The explanation of trade is simple, a transfer of ownership.
For investment, its more complicated due to the expected future benefit which may consist of capital gain. There seems to be a cross over. Which trader do not trade to expect a future benefit?
Thus I believe that the meaning of traders and investors should be due to the main core functions.
The transfer of ownership and the allocation of money.
Why is it important to know if you are a trader or investor?
If you are a trader, you should focus on transfer of ownership. Not how cheap the price is, its more of why you believe that someone will buy at a higher price from you .
As a investor, you should focus on your pool of money. How you can get max returns for your assets or money, with a acceptable risk. Your job will be more to allocate where to put your asset. That might even include bonds etc.
The above is my believe and simple definition . Hope it will benefit you.
