Photo: Jakob Halun. Source: Wikimedia
I started out in the financial business as a trader. A mid-sized bank I worked for put me on its trading desk – buying and selling Treasury Notes, futures, and options just about every day. It was addictive. I used technical and fundamental analysis, subscribed to charting services, and practically lived on my phone lines. Trading got into my blood.
I moved on to dealing foreign exchange overseas for a big bank. We called it trading, but we were there to provide currency and hedging products to international businesses that needed to move cash from one country to another. We also speculated on currency movements, both in major currencies and in small, exotic denominations.
Finally, I became an investor, managing portfolios with money market instruments, bonds, and stocks. Trading and investing are very different disciplines. It’s not just that trading is short-term while investing is long-term, or traders focus on price swings while investors look at total return, or that traders tend to be concentrated while investors are diversified. No, the biggest difference is mental, between our ears.
Trading starts by looking at the market – what its character is, whether it’s trending or cyclical, stable or flighty, and so on. Investors start by looking at themselves, what are our needs and limitations, our objectives and constraints. Traders start by looking outside, at what opportunities are available; investors look inside, examining what they want, what their restrictions are, and then making a plan how to get there.
Trading and investing are different mind-sets. Each can learn from the other, but don’t confuse them. Trading and investing can both be profitable, but only if they understand where they want to go, and how to get there.
Douglas R. Tengdin, CFA