Have you been wondering if you should be an investor or a trader? Or have you been assuming they are both the same?
Things like this, you have got to think them through. Firstly, trading and investing are two completely different concepts in the same market. Let us just say that there are two runners who sign up to run for a race.
Here, one of them runs with consistency, comfortably all the way to the finish line, and wins the race. The other one, on the other hand, alternates between bursting into sprinting and periodic walking in the race. Could you predict who the winner would be? It is obviously hard to predict, isn’t it? Both of them are different approaches to win the same match, aren’t they? The same applies to investing and trading of the stock market. Both the investors and the traders run the same match but with the end goal of earning profits.
What is Investing?
Investing is the procedure of aligning resources, usually money, with the expectation of getting an income or a profit over it. You can invest in endeavors, like using the money to start a business or even in assets, such as purchasing real estate in hopes of reselling it later at a higher price and much more.
What is Trading?
Trading includes more active engagement in financial markets than investing, which is based on a buy-and-hold approach. Trading success is determined by a trader’s ability to be successful over a short period of time.
What would you want to choose among the two? Investing or trading, and you need to know that they are entirely two different methods of earning profits. Both of these involve participation in the market. Here are some of their major differences, which would allow you to choose between trading and investing.
Difference Between Investing and Trading
Time Period –
Trading is the process of holding stocks for a shorter period of time. It can be for a week or most days even, a day! A trader is the one that holds stocks until the short-term high performance.
Investing, on the other hand, is an approach that works on buying and holding the principle. Investors invest their money for some years, decades, or for an even longer period, and that investment keeps growing over time.
Growth of Capital
Traders are the ones who look at the price movement of stocks in the market. If the price goes higher, traders can sell the stocks, which improves the trading skill of timing in the market.
An investor would have the art of creating wealth by compounding interest and dividends over the years by holding good quality stocks in the market.
An Art/A Skill
You are familiar with a test match. It is like a one-day cricket match, of course. You can, without a doubt, see that players score fours and sixes and score much higher than usual in a day’s match. The art of the game is seen clearly in a one-day match. Traders develop a skill, and technicality, learn market trends and earn higher profits. They are the ones who time the market.
Investing also involves learning the market and its fundamentals but is also the art of staying invested for a longer period of time, and it is related to a philosophy that is; what runs the business? How to keep it going for a long time.
Market Price V/s the Value
Traders would usually evaluate the market price to make a bid, and they would spend a lot of their time actually monitoring the market price and what would be the outcome of it in the next few minutes or hours.
Investors, on the other hand, would depend entirely on the market value and not the price. They evaluate a share or an asset based on its value and what would be their turnover in a matter of years.
The Factor of Risk
Both of them have their risks. There is not an approach that does not involve risk when it comes to trading and investing. But trading involves a higher risk factor than investing. Though it has a higher risk factor tangled with it, it has greater returns.
An investment has lesser risk when compared to trading. Someone who generally has a lower risk appetite and cannot afford to lose a lot of their money, they would choose to invest over trade in the market.
Price movements
When it comes to trading, it involves the procedure of noting down the short-term price movements of the market. They aim at the short-term price in the order of making better returns.
Investing is a profitable way to make money. They do, however, differ slightly in terms of how the analysis is carried out. But still, it also means you have to always look into the long term.
Conclusion
Investing and trading are not the same things. While many people are aware of this, it is not the case for others who are still perplexed. With the above-mentioned major distinctions, you will understand how trading varies from investing.
If you are an individual who is comfortable with risks and losses, then trading can be your drink. You can even enjoy the process and the thrill. If reducing risks is on your list, then investing is the right choice. Though the approach would be long, and the returns could be comparatively lower than trading, but still, the returns you would get would be assured.
Read more:
Investing Vs Trading, Which is Better?
