Investing and Trading are very different approaches of wealth creation or generating profits in the financial market. However, investing and trading are the two genres of the field. To learn the same in financial markets, let’s learn 5 key differences between investing & trading.1. Investing & Trading
Period
Trading is a method of holding stocks for a short period of time. It could be for a week or more often a day!
- Trader holds stocks till the short term high performance, whereas, investing is an approach that works on buy and hold principle. Investors invest their money for some years, decades or for even longer period.
Art Vs. Skill
While trading is a one day cricket match, investing is a test cricket
- Traders are skilled individuals who time the market and learn market trends to hit higher profits
- Investors analyze the stocks they want to invest in
- Investing includes learning business fundamentals and commitment to stay invested for a longer term
The ones who do
Traders put money in a stock for a short term
- Buy and sell fast to hit the higher profits in the market
- Investors keep themselves away from trends and invest in value
- They invest for a longer period of time keeping an eye on the stocks they hold
Capital Growth
Traders look at the price movement of stocks in the market. If the price goes higher, traders may sell the stocks.
- Simply, trading is skill of timing the market where as investing is an art of creating wealth by compounding interest and dividend over the years
Risk
Trading involves higher risk and higher potential returns, as the price might go up or down in a short while.
- Daily market cycles do not affect much on quality stock investments for a longer time, as there is compounding interest and dividends in a longer period of time.
