Active Versus Passive Trading

The difference between active and passive trading is like the difference between the actions of one person versus the actions of a group.

Active traders read everything on investing, study the stocks, and subscribe to magazines, associations, or newsletters.

They want to make money fast and they turn investing into their hobby and passion.

Active traders typically don’t hold individual stocks for many months or years, and generally do not focus upon long-term economic trends.

They have the potential to make (or lose) money quickly, but must devote much more time to trading than most long-term investors do.

Active traders prefer stocks that are rising and promise to be a forerunner for future outperformance.

Active traders aren’t involved in trading to earn money from corporate dividends.

In passive investing, a profit can be collected if a stock rises greatly over months or years to come.

Short term transactions exemplify the active investing style.

Passive traders are often interested in investing their money, but they do not want to spend their weekends studying financial statements.

They are often happy to put their money in the hands of a broker and walk away.

The passive traders create a plan, invest and then patiently wait for a return in the future.

A passive investor takes a look at the company’s value, assets, debt, and financial health.

They consider market and competition when estimating the company’s opportunity for success.

They are not aggressive, or looking for a quick gain.