Active versus passive trading
The difference between these two types of exchange is evident. The active deals aim at fast turnover while passive trader seeks long-term investments. Due to this, they look for markets with different volatility. The effort they place into various aspects of the trading is also evidently different. Active traders might read everything about some company, investigate it to the bone and then decide to invest. Passive investors want the return from the investment, but they don’t want to spend hours upon hours glued to the screen filled with financial reports. Each of these two types has their advantages that appeal to certain groups of people.
The fanaticism of active traders
Active traders mind borders on the fanaticism. They think about the stocks and possible trades at every point of the day. Those that have to trade as their primary source of cash spend almost every minute of the day glued to the charts, news and other sources of economical info. The thorough investigation that results in a successful trade is the goal of an active trader. The larger a number of trades they hit per day, more energy and willpower they have to continue like that tomorrow and the day after that.
Active traders want to profit as fast as they can get it, and many of them limit themselves on day trades. This allows them to invest in price fluctuation of the stock in the short period. They rely on technical, rather than fundamental analysis. They take on multiple trades per day to increase the possible profit.
You can also find this kind of people in binary options as well. It’s hard to recognize them as many use auto-trading software http://cybermentors.org.uk/ to skip over the research and analysis stage. This rarely works as they bring no insight into the trading with themselves.
One of the negative sides of this type of investment plan is that there is no actual long-term plan. An active trader can earn a lot within a span of days, but they can lose all of than in the same time frame.
The patience of the passive traders
Passive traders will gladly perform the research and check for the state of the industry as well. Once they complete all the preparations, they will invest their money in the shares, and they will wait. They buy the shares and wait for the right moment to sell them. That moment might happen in three months, or it might take two years for the price to go up. A passive trader is willing to wait for no matter the time, as long as he earns his share at the end.
The party that enters this kind of deal doesn’t bother with daily price changes and other short-term data. The price of their asset is the only thing they are interested in. The majority of passive traders respect the ten percent rule. This rule states that if the price goes down where the investor risks losses over ten percent of the investment they sell it, as it is, to keep the loss at a minimum.