Active vs. Passive Trading

Active vs Passive Trading was written by 21Cryptos Team, and it’s included in issue #19 of 21Cryptos Magazine. To read more articles like this subscribe today. To read other free articles check out our Magazine category. Follow us on InstagramFacebook and LinkedIn.

This article is from an earlier date and as such can contain figures that were actual at time of writing.

Active and passive traders are the two sides of the same proverbial coin. Active traders are the ones that spend hours reading over the latest info on any potential investment, they’re the ones who look for the little details others have missed, and they’re the ones who generally want to make money in as little time as possible. They research fast, and they trade faster.

Passive traders are at the other end of the spectrum, they don’t have the same time and energy commitments to trading, and instead operate on a much longer timescale. At the extreme end of this, passive traders will sometimes even give their money to brokerages and investment funds so that someone else can deal with the nitty-gritty of making their money work for them.

With active trading, the benefits are that a trader can respond to their environment lightning fast, they can spy a news story or company update and react in the quickest time possible to take advantage of the news to either enter or exit a trade, depending on whether that news is good or bad. Active traders can focus solely on a single trading day, so that when they go to sleep they can exit all trades and slumber without the stress of having risky open positions, or they can operate on a shorter scale of a few days at a time.

However the pitfalls of active trading are that it’s extremely time intensive, energy sapping, and can have an addictive element to it. If you’ve ever stayed up to see the early hours of the morning while watching candlesticks on the 1 minute chart, you’re probably well aware of this addictive nature.

Passive Trading

Passive traders are committed in a different way– they’re willing to play the long game and see out any minor dips or surges in price, and absolutely committed to their investments in a way that active traders are not. However because they don’t actively watch their investments in the same way, there’s a different type of risk– the risk that they’ll miss important opportunities for growth, and that they’ll miss warning signs of when to exit a position.

Which route a trader takes solely depends on their natural inclinations– whether they enjoy the speed and excitement and raw energy of active trading, or whether they want to see their investments grow over time while sipping cocktails on a beach somewhere (or just having more time for the day to day practicalities of life, family, and other work). Each style has its advantages and disadvantages, and the deciding factor on whether a strategy works is based solely on how well that strategy fits the trader or investor who uses it.