The Primary Objective of both Trading and Investing is to gain profits from the market. But both apply different strategies to make money from the Stock market. Trading is a short-term process that involves buying and selling financial instruments by catching the short-term ups and downs of the financial market. In comparison, Investing is a Long-Term process, where the investors buy and hold the financial instruments for a long term. Trading is always seen as an approach to immediately earn smaller profits from the market. Investing generally gives a larger return over an extended period. Both these methods have their own risk and reward factors. Always having profound knowledge about the method you choose will give you a successful outcome.
Trading is a process of buying and selling stocks, commodities, Currency, or other instruments. The goal of a trader is to generate profits from short-term stock fluctuations. Traders might seek a 10% return each month, contrary to the investor who seeks 10% per annum. So the risk taken by an investor is extremely high compared to an investor. As Trading requires more time to monitor the stocks, Trader should take this as his full-time job.
The profits made by a trader are generated by two methods. If they feel the price of a stock may go up and it is currently trading at a lower level, they may buy the stock and sell it if the stock goes higher as per their predictions. On the contrary, if they fell the stock may go down, and they make take a Short Call (You can sell and then buy in Stock Market). When the stock moves down as per their prediction, they may close the position by buying the share back. The difference between the selling price and the buy price will be their profit. Like Life always doesn’t go as per our wishes, stocks too perform against our predictions. If the stock goes just opposite to the anticipation of a trader, he will incur a loss in his trading.
Traders use Technical Analysis charts to see price fluctuations in the stocks. They use tools such as moving averages(MACD), Stochastic oscillators, RSI, and Volume, to find the best entry and exit points in a trade. To book their profits they will use Target methods and to protect their capital they use Stop-Loss as their tool.
Traders are pigeonholed based on their trading style. In general, Traders fall into one of the four categories:
👉 Scalp Trader: Positions are held for seconds to minutes.
👉 Day Trader: Positions are held throughout the day only and they will close their trades within that day.
👉Swing Trader: Positions are held from days to weeks.
👉Position Trader: Positions are held from months to years.
Traders often choose their trading style based on account size, amount of time dedicated to trading, level of trading experience, personality, and risk tolerance.
Investing is a process of buying and holding stocks, mutual funds, bonds, ETFs, or other investment instruments for a longer period. The goal of investing is to gradually build wealth over an extended period of time. While the traders try to gain profits from short-term fluctuations in the market, the investors outride the downward trend and keep on investing as they believe that the financial markets will eventually rebound in the long run. A yearly 10% ROI is seen as a good return for investors in the equity market. An Investor does not need to monitor the stocks daily. “BUY AND HOLD” is the basic mantra for long-term investing.
Investment is a disciplined process as the investments are made for a very long term. This method requires patience because investors must hold these stocks for years or decades. Investors basically pick their stocks based on Fundamental Analysis. It measures the stock’s Intrinsic Value based on the company’s financial situation, market, and economic conditions. Investments are often held for a period of years or even decades, taking advantage of perks like interest, dividends, and stock splits along the way.
Investors are generally categorized as one of the below two types of investing.
👉Active Investing :
Investors who actively manage their own trading accounts and actively pick stocks are engaged in active investing. They usually tend to monitor the markets on a regular basis and make changes accordingly.
👉Passive Investing :
Passive investors follow a buy-and-hold strategy. This type of investor does not make an effort to closely monitor the markets on a daily or even regular basis. The goal of passive investing is to track the returns of the benchmark index.
👉Value Investing :
Value investing is an investment strategy that involves picking stocks that appear to be trading less than their intrinsic value. It focuses on stocks that are underappreciated by investors and the market at large. They will see the company’s strong fundamentals and believe the company has great potential to recover from the short-term downside.
👉Growth Investing :
Growth investing is a strategy that centers on choosing stocks and similar investments that have significant growth potential. Growth investors target companies with innovative products or services and strong market positions, which can result in significant capital gains over time. The primary advantages of growth investing include higher potential returns, capital appreciation, and better long-term prospects.
Investing aims to create a diversified portfolio with different stocks and instruments that can increase in value over time. Furthermore, the process of investing doesn’t recommend selling the holdings frequently. However, investors must also keep track of their stock investments as they are volatile, and any change or news may sometimes have a long-term impact on such stocks. Under such circumstances, investors must take effective choices to have a good return on their investment.
A good investment strategy would be to enhance their profits by compounding or reinvesting any profits and dividends into additional shares of stock.
A trader’s and an investor’s financial goals and trading styles may differ, but both target profits from the financial markets. Trading needs more time and dedication and risk is significantly high, whereas Investing needs more discipline and risk is lower compared to trading. Traders and Investors have different requirements for skill and capital. Both need to organize their own plans and execute them with proper guidance.
Powered by BetterDocs
You must be logged in to post a comment.