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.
Investors follow a longer-term approach. They set aside money in the stock market for years and hold on to these stocks through the ups and downs of the market.
Stock Trading vs Stock Investing: How are they Different?
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.
Also Read: Portfolio Investment Types
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.
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.
Also Read: How to Earn Profits in Share Market?
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.
Share Market Knowledge Centre
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What are the Types of Share Trading Orders?
The proliferation of digital technology has made share trading in India easy and convenient. Whether you are engaging with a broker or managing your share trading online through a trading account platform, it is vital to understand the mechanics behind buying and selling stocks, primarily different types of share trading orders and when to execute them. Understanding the share trading orders will help you trade stocks more effectively because you can align your purchase and sale per your investing style.
Here is everything you should know about share trading orders:...Read More
What is Call and Trade?
When you decide to start intraday trading and open a trading account, the broker offers an online platform allowing you to enter trades and take positions on stocks. Digitization and advancement in technology have made it easier for people to buy and sell stocks by logging into the online trading platform.
What are Shares and Types of Shares?
To be a successful share market investor, you need to understand various investment options available to you like shares, bonds, debentures, etc. Of these, shares offer an opportunity to earn good returns on your investments. However, before you start your journey as a share market investor, it is important to understand what you are investing in.
Frequently Asked Questions
Online trading allows users to search for stocks available on different exchanges. It lets you decide on the broker who offers the best price and an intuitive trading experience.
Traders and investors both earn profits. However, with the right decisions and a favourable market, traders can earn more profits compared to investors.
When compared with investing, trading is riskier. It involves a high risk-reward ratio. Conversely, investing is a long-term approach and carries lesser risk.
Both trading and investing are approaches to earn profits. Which of the two is better for you depends on your risk-taking ability and patience. You can choose to go ahead with either of these or both of these. Trading is short-term and comes with high risk, while investing is long-term and has lesser risks
Investing is a long-term approach. The objective is to gradually build wealth with investments in schemes. These include bonds, mutual funds, a portfolio of stocks, and more.
Trading is a short-term approach. It is a volatile process involving frequent transactions based on market trends.