A portfolio manager and a trader work in the same field; both overlook the buying and selling of financial securities with the aim of profitability and rewards. What differentiates them is the nature of their planning; one focuses on immediate term returns while the other works to build synergy in a portfolio.
Traders can become portfolio managers because of their expertise in financial markets and instruments. However, traders don’t need to make this switch as they differ from portfolio managers due to their nature, planning, priorities, and trading patterns.
By the end of this article, you will learn the roles of a trader and a portfolio manager, with a higher level of detail in what differentiates them and what makes them similar. You will also be able to figure out a career you are more suited for and, finally, whether traders can switch to portfolio managers.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Who Is a Trader?
Traders have an individualistic and short-term approach. They buy, sell and trade financial assets such as stocks, bonds, mutual funds, Forex, cryptocurrencies, etc. for either a company or themselves. Traders work for short-term profits, and a typical day for them will consist of trading financial security multiple times for immediate and maximum profit.
Traders either work alone, trading securities for their own gain, or under a portfolio manager for an organization. A trader is more involved in the process of buying and selling securities. However, there are two instances where his or her power of decisions will vary.
Traders Trading for Themselves
These traders focus on short-term growth for their own returns. Like any person working for themselves, these traders are the type who likes to stay quick on their feet, focus on the now, and make quick decisions based on market trends and information circulating at that moment.
Most of the time, they will be working from home or a small office they set up themselves. And because they trade for themselves, their start-up or initial capital for investment is not too hefty.
Sometimes, these traders like to go for quick stocks to raise money, such as penny stocks; in other words, because they are their own masters, they do not have to limit themselves to stock markets such as NYSE or NASDAQ; some of them may even enjoy electronic trading. Other traders who have enough capital to trade in the big league can bump up to buy more expensive stocks on large stock exchanges.
Trading as a Part of an Organization
Of course, not all traders need to work for themselves, and that all of them work in the stock market. A trader who works for an organization can dabble into multiple financial instruments as their expertise and knowledge allow them.
Mutual funds, bonds, stocks, and other forms of debt instruments can be bought and sold by a trader who is specifically employed by a company. In this case, a trader will likely work under a portfolio manager and execute trades according to the strategies and long-term plans created for them, so their main job will be to follow orders to maximize profits.
Sometimes, a firm may opt just to have a trader instead of a portfolio manager. In this situation, a trader’s duties can be a mix of portfolio management and trading; their main objective is profit and may be called a risk-taking investment manager. Regardless, due to their nature of trading, they will focus on rewards and quick profits for the client, leading them to trade securities many times during the day.
Who Is a Portfolio Manager?
A portfolio manager is higher on the hierarchy compared to a trader. They formulate investment strategies with management, keeping in mind long-term capital requirements and expansion plans. Their goal is profit as well, although they achieve it differently.
Portfolio managers select a combination of investment securities based on company objectives and risk tolerance to ensure profits for an extended period. The pursuit of profit here combines with value as they focus on current value and value growth.
As a manager, they will work above a team of traders, among which they will divide the responsibilities of each security. Their strategies need to ensure harmony not only in theory but in practice as well. They are in charge of most of the decision-making when it comes to funds, and due to their expansive role, they need to meet with people other than just traders.
Consequently, portfolio managers need to meet with external parties such as software developers, investment bankers, fund administrators, internal parties, including stakeholders, being a part of management meetings, and so on. In a few organizations, they are even responsible for infrastructures such as software programs, traders’ employment, and adequate research and guidance for their team to guarantee a smooth execution of strategies.
Portfolio Managers vs. Traders: An Overview
Long-Term vs. Short-Term
A portfolio manager formulates plans for long-term investment goals, whereas a trader will trade many times in a day with the primary objective of profit. This makes the portfolio manager more biased towards holding while the trader focuses on maximizing the number of transactions.
Research
A trader does not rely too much on research. They will assess the market, go through a company’s financial records, and perform a quick market analysis to make decisions. A portfolio manager, however, does in-depth research as they are responsible for the company’s funds. Deciding which instruments diversify risk while also simultaneously providing maximum reward is a portfolio manager’s duty.
Nature of Trading
Traders enjoy the thrill of fast decisions; they get in and out fast wherever there is a chance for profit and do not dwell too long in creating strategies. On the other hand, a portfolio manager may hold on to securities for long periods due to the return potential. They are slower and careful in handling these decisions as they need to rebalance portfolios after making an addition or deduction.
Salary Structures
Traders often work on commission when working for clients based on how much they will earn. Portfolio managers charge a fee based on the value of the organization’s total portfolio. Again, this makes one focused on holding positions while the other maximizes trades.
Can Traders Become Portfolio Managers?
Both are similar in many ways. If you have been working as a trader for a while, you already possess vital insights into securities markets. To transition to a portfolio manager, a trader must tune their personality to shift towards a more future-oriented stance. Practices of trading will now be based on investment strategies rather than a daily goal of monetary profits.
This may be difficult as traders enjoy the volatility of investments, whereas portfolio managers enjoy stability and growth that grows over the years. Another critical factor is the amount of work. A trader will spend many hours studying and buying shares. A portfolio manager will only trade a few times a year, and when it is beneficial, keeping in mind the overall portfolio.
However, both need to work on logic rather than emotions, what fits the facts and trends rather than intuition. They need to stay informed on current affairs, securities they trade-in, and have an optimistic attitude while bearing possible losses.
How to Switch From Trading to Portfolio Management?
Suppose you want to pivot from trading to becoming a full-time portfolio manager. In that case, you’ll need to network and blend into the upper-middle-class while producing consistent medium-term results trading. You’ll need to act like a portfolio manager of a single client: yourself. Upon acquiring appropriate qualifications and documentation, your returns will be like your resume when you pitch portfolio-management services to your friends.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
All in all, a trader can become a portfolio manager. The decision boils down to the trader’s capabilities and whether they are willing to take the leap. A portfolio manager means adding more responsibilities to their plate and changing trading patterns. While the switch in the environment may seem complicated, it is not impossible.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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