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Difference between Investing and Trading

Difference between Investing and Trading

Difference between Investing and Trading – Basically, an investment and a trade are not the same. Both really want to achieve an advantage for the future. But there are differences between the two as well. What are the differences?

Time period

Trading or trading is a method of holding stocks for a short period of time. It could be for a week or even just a day!

Traders hold stocks up to short-term high performance, whereas, investing is an approach that works on the principle of buy and hold. Investors invest their money for several years, decades or even for a longer period. Short-term market fluctuations are not significant in the long-term investment approach.

Difference between Investing and Trading

Capital Growth

Traders look at the movement of stock prices in the market. If the price is higher, the trader can sell the stock. Simply put, trading is the skill of timing the market, where investing is the art of creating wealth by accruing interest and dividends over the years by holding quality stocks in the market.

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Undoubtedly, both trading and investing imply risk on your capital. However, trading comparatively involves a higher risk and a higher potential return as prices may go high or low in a short period of time.

Since investing is an art, it takes time to develop. It involves relatively lower risk and lower returns in the short term.

However, it may provide higher returns by adding interest and dividends if held for a longer period of time. The daily market cycle has little effect on investing in quality stocks for a longer period of time.

Art Vs Skills

Let’s learn it this way, trading is a one day football match, while investing is a test football match. You will see skilled players on the team who are expected to score goals to score higher in one day matches.

Though, the art of the game shows in the test match! Similarly, traders are skilled and technical individuals, who time the market and study the market trends in order to get higher profits within the given time. This is related to market psychology.

Investors on the other hand, analyze the stocks they want to invest in. Investing also includes learning business fundamentals and a commitment to keep investing in the long term. It is related to the philosophy of running a business.