Investor or a Trader?

Before I actually started trading, I asked myself - Am I here for trading or for making investments? And, I am sure there are many others out here who have been thinking that whether they are traders or investors (or should I say they are still thinking what they should be!!). Before you categorize yourself on the basis of for-how-long-you-will-risk-the-money-basis, let us understand what exactly they (traders and investors) are. And for that one should know the time periods in the stock markets.






The period for which you keep a share bought with yourself defines whether you are a trader or an investor. These time periods are of 3 durations - Short term, Mid-term and the Long-term. though stock markets have not defined any fixed time length for these periods, but they generally follow these ranges (these can be different for different people): Short Term: Less than 6 months Medium Term: 6 months to 1 year Long Term: Anything that is more than 1 year Traders are those people who put their money in the markets for either short term or medium term. They are here for making the money from ups and downs of the stock prices. Whereas, investors are those people who invest mostly for long term. The motive for both, the traders and the investors is to make investment in the stocks and gain from the change in price of stocks. The investors do also get to earn from the dividends paid out to them for holding the stock. (Traders can also earn through dividends, but that is not the primary method of earning for traders, except through dividend stripping). The traders take advantage of the fluctuations in the stock prices, they sell at high prices and buy at low prices.


The other difference between traders and the investors is that the traders follow mostly the technical indicators and the price movements to determine which stock to buy (or sell) and when to buy (or sell). Whereas, the investors are more concerned with the fundatmentals of the company they are planning to invest in. 


Fundamentals refers to the financial and operation performance of the company. The investors invest their money in those companies who are expected to perform well, so that in future their prices can rise on the stock markets and they can earn profits.
There is another important aspect related to these categorization and that is about Tax. According to the India's tax regulations, the traders (anyone who has made profit from selling the stocks within an year of buying it) are liable to pay Tax on the profit earned from the sale of stocks. The long term investors are not liable for any tax on profits earned from sale of shares.

What are Trading accounts and Demat accounts?

Recently I was surfing through a few blogs and one of the blogs talked about the difference between the Trading account and the Demat account. So let me take this topic up here also.

Demat Account

Share trading in earlier times used to be in terms of paper certificates. I do remember my father used to show me the share certificates when I was a kid. During those times, the certificates were the prove that you hold shares in the company.



But with the growth in technology and the increasing use of computers, the shares also went online. Now the shares are in the form of electronic units. The papers shares are now Dematerialized.

Now when the shares are in the form of electronic units, there should be some way that they should be kept accounted for. For this, there are 2 bodies under which takes care of your electronic units. These are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).

One has to get an account open with either of them, where one can get his / her dematerialized shares deposited. These are accounts are thus called Demat accounts.

Trading Account

Now you have got your Demat account opened with one of the depositories and you are ready to trade. But wait, how will you trade and where would you trade?

If you want to trade in stock exchange, you cannot do it directly. Only stock exchange members can trade at stock exchanges or the brokers. 

Brokers are those type of stock exchange members who trade in the stock exchanges on behalf of others, i.e. investors such as you and me. They, in turn of trading for us, charge us their fees called brokerage.

Now, these brokers have so many investors with them, so they have to maintain accounts for each of them. Through these accounts, the investors can provide their brokers with funds, make buy/sell orders, keep track of transactions, keep account of funds, etc., in short everything that is related to your daily trading. Thus, these accounts are called Trading accounts.

There are many brokers which are there in the market with which you can get your trading account opened. One should prudently choose a broker with which you would like to get your account opened as different brokers can charge you competitive brokerage. Some brokers also give additional services, some for additional fees and some services just free of cost.