IS STOCK INVESTING AND TRADING DIFFERENCE?
DIFFERENCES BETWEEN STOCK INVESTING AND TRADING
Both trading and investing focus on profit-generation in the stock market. However, the way traders and investors approach this goal is different.
Traders aim to earn short-term profits. They jump in and out of stocks within days, weeks, and sometimes even minutes. Their focus is the stock’s technical factors and not the company’s long-term prospects. Traders think about the direction in which the stock can move and how profits can be earned from that move.
Stock Trading vs Stock Investing: How are they Different?
- Method:
One of the most prominent differences between stock trading and stock investing is the method used to make money in the stock market. Investors rely on fundamental analysis to make their buy and sell decisions, while traders use technical analysis. For fundamental analysis, users focus on the company’s financials, assessment of the industry, and the overall macroeconomic situation in the country.
Technical analysis focuses on the stock price in the market to forecast future trends and analyze historical ones. It does not take into consideration the factors that affect the market price. It focuses on the shifts in price, volumes, and moving averages over a period.
- Time horizon:
Time horizon is another factor that can help users understand the differences between stock investing and stock trading. To elaborate this with an example, imagine you buy a shop to start a grocery business. In just two weeks, the price of the property increases, and you agree to sell it at a profit. This is trading. Conversely, if you buy a property intending to enjoy its long-term benefits after the area develops into a residential area, it is known as investing.
Trading in the stock market online or offline refers to holding stocks for the short-term and earning a profit by selling stocks after the price reaches a high. The consideration period for traders can be a day, a few weeks, or a few months. On the contrary, investors pick stocks based on strong fundamentals and keep them for a longer time. The consideration period for investors ranges anywhere from a few years to decades. The objective is to maximize their wealth in the long run.
- Capital Growth:
In trading, the focus is on the movement of stock prices. When the price increases, traders can sell the stocks. In simple words, trading is the art of timing the market. And, investing is the skill of creating wealth by compounding interest and dividends over several years. Investors maintain stocks in their portfolios for a longer period.
- Risk:
Risk is attached to both trading and investing. But stock trading is relatively riskier than investing. It involves higher potential returns as the price can fluctuate in a short period. Stock investing has lower risk and lower returns in the short run. However, it can result in higher returns by accumulating interests and dividends on shares held for a few years.
Final Takeaway
Trading seems like an exciting way to earn money quickly. But, just like gambling, it can also make you lose a lot of your money. Investing involves smaller short-term wins, as well as fewer severe losses. If the risks don’t make you uncomfortable, you can enjoy trading with a portion of your money and earn profits.
If your goals are exposure to volatility and minimizing risk, you should go in for long-term investments. However, if your objective is to save for a financial goal you wish to meet by a specific time, it is best to follow a slow-and-steady investing approach.
