Thursday, 5 October 2017

Transaction Cost - Are you a trader or an investor?

Transaction cost? 
Brokerage Fees/Commission?? 

Oh well. They're indeed annoying to everyone, and especially much to nano retail investors like me!
Sourcing for the cheapest brokerage fees is definitely important, but hold on.. are you investing or trading? Let's take a look, shall we?

I've found this on the net about the differences between the various individuals

Investing VS Trading:
Investing and trading are two different methods to take profit of the financial market. Everyone in the stock market wants to make money. So what are the differences?

Investors tends to buy and hold a portfolio of stocks for a long period of time and uses the effect of compounding or reinvesting into another stock to enhances their wealth. As such, an investors uses time to makes money for them. This is also known as 'Time in the market.'

Investors believe in long-term prospects of the company, as such they do not check the prices of stocks they're holding every minute, hour, days or weeks. Investors buys a company and profit from it's success and growth. They'll usually look at a company's value, balance sheet, income statement, cash flow statement, fundamentals as well as management and metrics such as P/E ratio and more to help them with their decision.

So is there a particular time frame to determine if someone is an investor? The answer is no. There is no definition that defines an investor saying that if you crosses this time period of holding this stock, you're an investor. However, investors usually hold on to their stock for a long period of time and transaction fees are an one-off event for them. This also mean that transaction cost should not be a big issue to them. Nonetheless, it does not mean that the transaction fee is nothing to them.

A very notable long-long-long term investors is Warren Buffett.

Traders on the other hand profit from the buying and selling of the stocks and the period of holding the stock is usually short-term. They will usually use tools such as charts, technical analysis, moving average, stochastic oscillators, support level, resistance, stop-loss etc. They would use certain instruments such as CFDs, Short-selling to trade and profit amplifying tools such as leverage help them get a better profit. 

Trader trades on different financial markets. Apart from stock market, they would also trade on commodities, currency pairs etc. Now, this is known as 'Timing the market.'

There is a few different type of traders, such as swing traders, where they feel that in a period of time, looking at some possible catalysts, something is going to happen and that this something that is happening will cause a swing in the price, be it up or down. They'll be benefiting from the swing.

Day traders is another type of trader that completes his/her buy and sell within the same day. They're anticipating that something is going to happen in the day that will cause the share price to move up/down whereby similarly, they will be profiting from it. There is no overnight positions for a day trader. Similarly to Scalp Trader, which completes their trades in minutes.

The different type of tradings is suitable for different traders in terms of the level of risk they're planning to take as well as the experience they have in trading and the returns they expect from each trade.

In trading, as the profit is obtained from the buying and selling of an instrument, the transaction cost is much more important as it will plays a part in their profit. If the transaction fee is high and substantial, it will mean that it is eating into their profit.

One legendary trader is George Soros, which shorted 10 billion worth of pounds in 1992 yielding him $1 billion in profit. 

Remember: There is many ways to make money from the financial market. The question is how. 
There is a number of individuals they uses both method to profit more from the market. Finding out which method that suits you will definitely be the priority. 

So who do you want to be??
George Soros? Or Warren Buffett?

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