Stock Trading vs. Investing What’s the Difference

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Trading vs. Investing

Stock Market Trading is about to buy and sell stocks for a short time of interval in order to get profit by stock price fluctuations. Investing is about buying stocks for a long-term period in order to get profits.

Trading In Stock Market

Traders make money by buying and selling the stock in a short span of time, knowing the principle of sell at higher and buy at lower. They buy and sell the stocks more frequently to hit higher profits in the market.

Missing the right time may lead to a considerable loss sometimes. Traders are looking for the present performance, movement of stocks, news about the company, in order to book profit at a higher rate, even they do short selling as well.

Trading is based on the principle of cheap buy and high sell. While trading is an unsafe activity, Successful traders have their own systems or we can say strategies which are well suited to them & works for them. One must understand that if we want to become a day trader, there is no strategy present in the stock market to make us profitable every single day, we need to create our own system best suited for us like pro trader which make us profitable in the stock market.

A single trade for a trader typically ranges from a few seconds to a couple of months,  Depending upon the trade (Intraday trading, swing trading, etc)

It falls under 4 Categories:

  • Day Trader – Day traders hold the Stocks throughout the day with no overnight positions.
  • Scalp Trader –Scalp traders hold the Stocks for a short period of time for seconds to minutes with no overnight positions.
  • Position Trader – Position traders hold the Stocks from months to years.
  • Swing Trader – Swing traders hold the Stocks for a little longer than scalp and day trader from days to weeks.

Also, read  Why is Price Earnings Ratio is Important in Stock Selection?

What is Trader motive behind TRADING (GOAL)?

Knowing the cause and the amount of expected profitability of STOCK MARKET TRADING, you can control RISK and choose the best TRADING option for yourself.

This is also an important question, what is the reason behind doing TRADING – how much you want to earn from TRADING when you know the REASON of your TRADING, it helps you decide which TRADING STYLE you should choose and risk you want to raise.

Investing in the Stock Market

On the other hand, Investing is the study of fundamentals of the company, their growth, their management, financial stability and evaluating the past performance of the company and their stock price movement rising over periods.

Investing is based on Fundamental Analysis. In case of Investing, It’s a game of Investors no stop loss, no technical analysis nothing, Just the knowledge about the company their balance sheet, price earning ratio, past performance, and make money by holding their stocks for a longer time.

Some Investors also make a portfolio of mutual funds, But here all the research done by the fund manager by putting various companies stock in a single fund.

Mostly Concerned about the fundamentals of the Organization such as the price-earnings ratio, Balance sheet, Working Captial.

Features of Trading:

  • Goal: Generating Profits by stock market fluctuations.
  • Belief: Stock price will move forward without hitting the stop loss.
  • Profit: But at Low and Sell at higher.
  • Term: Short to Medium term, sometimes less than even minutes.
  • Return: 10% return each month.
  • Tools: Technical analysis ( Moving Averages, Oscillators, Fibonacci Retracement, Candlestick chart)
  • Strategy: Buy to Sell.
  • Protection: With the help of putting stop loss to predetermined the loss or profit.
  • Risk Involved: High.

 

Features of Investing:

  • Goal: Investing is to firmly make money over a period of time through buying & holding the stocks for many years.
  • Belief: Perform well and provides good returns.
  • Profit: Reinvesting the profits into additional purchasing of stock.
  • Term: Medium to Long term, sometimes even decades.
  • Return: 10–15% return annually even more.
  • Tools: Market Fundamental (Price/ earnings ratios, Potential of Management).
  • Strategy: Buy to hold.
  • Protection: Survive the downtrend with an expectation that prices will raise& Losses will be removed.
  • Risk Involved: Comparatively Low.

Conclusion:

Both focus on making good profits, but there is a difference in that in trading, the trader wants to generate income by buying and selling securities at every market active day. Unlike Trading, In Investing, the investor aims to make money by putting money in those Companies whose are fundamentally strong, and that can give good returns in future, holding the shares, holding period of investing could be decades.