Trading and investing are two of the most popular profit-making options that are available in the market. Even though the result of both these activities is getting financial profits, they are far from the same. Both the investors and traders attempt to use the money they have to gain profits from the market.
However, for every new investor or trader, knowing the difference between these two activities is essential. If you are someone who is looking forward to investing some money in the market and do not know which of these options is better for you, this guide will help you.
What is Trading?
Trading is a process in which a person holds their stocks for a small period, which can range from a day to weeks and then trades these stocks when they show some growth. Trading is entirely based on short-term market fluctuations. Hence, the money is generated in
Smaller time frames. It is a risky approach to wealth creation. To know more about trading check out this detailed guide on the share trading for beginners: https://www.theguardian.com/money/2010/jun/19/share-trading-for-beginners
What is Investment?
With the investment, the primary goal of the investor is to slowly build their wealth by putting their money in the stock markets, bonds, and other such investment options. Unlike trading, investments take a longer time to give you profits. Hence, you will have to wait for years or even decades to make a big profit from your savings. This is a much safer approach to wealth creation.
Trading vs. Investment
Here are the key differences between trading and investment that you should know:
Approach Towards Market
The first difference between investment and trading is the market approach. The methods of placing the money in stocks differ from each other. Investors will often use fundamental analysis of the companies to select the stocks they want to buy.
Fundamental analysis means financial analysis of the company in the long run. Traders often use technical analysis, which is the analysis of prices of the stocks and their patterns in near future. A lot of
The length for which the money is being invested also differentiates trade from investment. Trade happens on the day to day bases. Each share is bought with the end goal of making short term profits and faster selling. As soon as the prices touch a high, the trader will sell the stocks. In the case of investments, people go in for longer hauls. These investments are made for years or decades to get the benefits after this specific period.
The risk involved is one of the most significant differences between trade and investment. Although both these have their fair share of risks, investment has a lesser probability of reducing your income.
Since trading requires a trader to make quick and short-sighted decisions, this can both lead to loss and huge profits. Hence the risk profile is pretty high. There are a lot of companies and traders’ official website that teach the learners new ropes of day trade and the risks involved with them. Investing, on the other hand, is a habit that takes a long time to master but mainly involved in making profits in the longer run.
Since the investment is made for an extended period, daily fluctuations in the market do not have a drastic impact.
The investors and traders both have different attitudes towards wealth creation or the stock market. The traders have the ‘buy and sell’ mentality, whereas the investors will go for the ‘buy and hold’ approach. For a trader, the decisions of buying and selling have to be taken within days to gain short term profits, but for investors, these decisions are taken once in years or months.
The short-term volatility of the market can be risky for the traders, whereas this is not the case for the investors. Also, the trading is not focused on the kind of company the money is being put in; rather, it focuses on the price and trade volume. The opposite is true for investments where the company and its growth matter a lot.
Which Is Better For You?
As we could see, there are some significant differences between trading and investment. One of the biggest factors involved is the risk. If you are willing to take the risk and can develop the quality of pulling out your money at the right time to gain profit, then trading is the best option for you.
Know that trading will require you to understand the market and timing it correctly. In simpler words, people who are looking for short term profits and are ready to take bigger risks for them should try and learn the art of trade. You should always read about the do’s and don’ts of trading before starting.
We know that risk is involved in both trade and investment. But if you want the lesser risk option that will give you wealth after some time, go for investment. It is one of the best options to choose from when you are looking for retirement plans.
Since this requires you to buy and hold strategy, you do not have to stay actively involved in the trading. You need to be aware to keep maintaining your assets. This is a good option for the people who do not have a lot of time but still want to create wealth from the market.
Trading and investment are two options that inevitably generate a lot of wealth if done correctly. Both of them require knowledge of the market and some experience in handling money. Saying one is better than another can be a wrong statement to make—each of these options suits different individuals.
So, people who are willing to take risks and can devote their time and money into the stock market should learn to trade and try it out. However, people who do not have the time and are not knowledgeable about the market as much should go for investing.