The stock market is a vast world; if you are not careful enough, you won’t be able to move at a similar pace. Over the years, the stock market has offered individuals the opportunity to make money and become investors to live their life.
When we talk about the stock market, there are two types of people in the stock market – traders and investors. Although these two entities use the same field to make money, they are poles apart with their methods to make money.
This article will discuss the differences and will highlight the pillars that mark the differences. To keep yourself updated with such useful information, follow the best stocks news.
Investing Vs. Trading: Definition
Before we can get down with the differences, it is better that we know what we are dealing with here. Therefore, we have prepared a small explanation of the two to start from the same page.
Investing
Investing is when an investor has the objective of creating wealth over time. The investors achieve this feat by buying and holding profitable stocks that would appreciate and sell them later when the prices are very high.
Investing is all about compounding your assets and portfolios and bringing out the best price. However, to earn high prices, these investments are held for a very long period of time, sometimes even decades.
The underlying point of investing is the long-term horizon that only the investors see and try to benefit from compounding as the stocks perform. In fact, investment has become one of the most paying online jobs in the pandemic.
Trading
Trading is comparatively a very short-lived deal, sometimes a single-day trade. As a result, traders who make money from the trading hold a short-sighted view and look to benefit themselves out of the stock’s price fluctuation.
Trading involves more frequent transactions that revolve around the following practices.
- Buying and selling of stocks.
- Currencies.
- Bonds.
- And other financial instruments.
Trading comes with a plethora of time horizons. A single trade can last for one minute and, if you want, can go as long as one year. The sheer types available for the trades, even the traders, can be further categorized in the following.
- Position Trader: These traders hold their position for months to years.
- Day Traders: These traders specialized in day trading. They open and close their trade on a single day.
- Swing Trader: These traders hold their position for weeks.
- Scalp Traders: These traders hold their position for seconds and minutes.
Investing Vs. Trading: Differences
If we compare the stock market to a coin, trading and investing would be the two sides of the coin – part of the same entity but completely different. Here are a few markets that differentiate the two.
1. Capital Growth
Trading is all about the optimum timing in which you enter the trade and exit out. When the price starts increasing, traders sell out the stocks. However, investing is the art of compounding the stocks in an effective way to create wealth. It does not care about the dynamic changes of the stock market.
2. Period
Trading is a method of holding stocks for a short period of time. The tenure of a single trade can last from seconds to days – to days – to weeks – to year and make a profit over the difference between buying and selling. However, investing is about buying and holding stocks for years to decades.
3. Volatility
The volatility of trading and investment is quite different. Trading is all about checking every fluctuation and making decisions over the small changes. At the same time, investment is less volatile as it calculates the value of the stocks in the unit of years.
Investors predict the value of stocks in the next ten years; other than that, nothing matters.
4. Associated Risks
Perhaps this pillar supports both the difference and similarities. Undoubtedly, both trading and investment come with risk – trading depends on the dynamic nature of the market and hence, comes with higher risk.
While investment is more of an art that gradually creates wealth over time, the risk is lower than trading. Hence, the dynamic fluctuation does not bother the investors.
5. Require Different Skill Set To Deliver
Both trading and investment require different skill sets to deal with the stock market. For instance, traders are more analytical and calculate their every step. However, investors are more farsighted and try to see decades into the future.
Which One Is Better?
Although both trading and investment belong to the same market, both require different skills set, tenure and come with different types of associated risks. So, it is up to you to decide how you will make money in the trade market.
If you are good at analyzing graphs and charts to predict the next movement of the stock graph, trading might be your cup of tea. You want to take advantage of the compounding; an investment might be a safe bet.
