Investing and trading are two radically different approaches to making money in the stock market.
Investors seek larger returns through holding stocks for long periods of time. Traders make quick profits, buying and selling stocks in a short time frame. Beginning investors might be confused as to which suits them better.
In this article, we will break down the differences between trading and investing, so that you can decide which one suits you best
Investing
- Investors aim to accumulate wealth by buying stocks, and other investments, and holding them for long periods of time
- Investing takes place over years and even decades.
- This strategy makes profits through compound interest, dividends and share split. Investors can also choose to sell their shares at huge profits, after holding them for a few years
- In the long run, small market fluctuations don’t have an effect on the price of a stock. Investors play the waiting gain. Even if their stock is at a loss, strong companies will eventually rebound and continue rising from there.
- Investors are more concerned about the fundamentals of the company, and the industry of the company
Trading
- Trading involves more frequent transactions than investing. The goal is to generate higher profits than traders. Investors might expect 15% a year, while traders might expect that amount in a month.
- Traders buy stocks when they are low, and sell when they are high. Unlike investors, they immediately sell a stock that is making a profit or a loss. They stick to their specified stop-loss and release the stock
- There are also different types of traders, with different frames of trading
- Position Trader: These traders hold positions for months to a year
- Swing Traders: These traders buy low, and wait for a few weeks to sell
- Intraday Traders: These traders buy at the start of the day, and sell it by the end.
- Traders choose their trading approach based on the amount of capital they have, and their risk tolerance. Be sure to keep these factors in mind when choosing your method of investing!
