One of the most important questions which are asked by the newcomers to the share market is that, what is the main difference between trading and investing. Often times people use these terms interchangeably but don’t ever rely on that. These two terms are very different and have a different meaning.
So how is it that trading and investing are different from each other? which way is better for you to make a profit financially. you can create your wealth in the stocks market with the help of trading or investing. They are basically two sides of the same coin, both will allow you to make a profit or even take you to the loss you need to understand their key difference and know when to switch. so without wasting your time, let’s get into it.
Following are the key differences which you need to know about the Trading and investing.
Trading basically means that you hold the shares or stocks for a short period of time. this time period can vary from several days to weeks, traders hold the stock till it reaches its potential for a short period and then sells them to make a profit.
While on the other hand investment is an approach which works on the buy and hold principal. Investors invest their money into the companies for several years or decades or even for the longer period. all the short term fluctuations in the market are considered negligible in the investing approach as it is considered for a long duration of time
Traders look for the price movement of the stocks in the market if the price goes higher traders may decide to sell the stocks, It depends on the timing. so to put it in simple terms trading is constantly monitoring market values and it depends on the trading skills and identifying the current timing of the market.
On the other hand, you can say investing is a type of art. Where you create your wealth by compounding interest and dividend with holding the high quality of shares for a longer term in the market.
Without any doubt, both of these types have their risk factor. But if you were to compare them with each other you will find that the Trading has a higher risk but also a potential for higher returns as the prices may go from high to low within a short period of time.
While as I mentioned before investing is an art so it takes a lot of time, so it has low risks and low returns for a short period but it might deliver higher returns with the help of compound interest and dividends if held for longer period of time. Daily market cycles don’t affect much on the quality stocks.
ART vs SKILL
To make it in terms so that everybody can understand you can say trading is sort of twenty-twenty cricket match while on the other hand, Investing is a test match.
Traders are skilled technical individuals who are able to time the market and learn about the trends of the market to gain the highest profit possible.
Investors on the other hand carefully analyze the stock that they want to invest in. It also involves learning about business fundamentals and commitment to stay invested for a longer period.
THE ONES WHO DO
Traders put their money in the stocks for a limited short time, they buy and sell at a very fast rate to hit the highest profit possible in this case missing the correct time may lead to a loss. They look at the current performance of the companies and book in them for a short term profit.
Investors stay away from the market trends and try to invest in the Value of the company they invest for a longer time. They wait till the stock reaches its full potential
Now that you know, you can decide whether you want to opt for short term profit with higher risk or a long term profit with lower risk. It completely depends on your requirement.