When it comes to creating wealth in the equity market, the two genres of the field are investing and trading. However, investing and trading are two very different approaches to creating wealth or profit in the financial market.
Assume you and a friend bought equal amounts of seeds to sow in your fields today, but you sold them to someone in a day to make a profit. And your friend sowed the seeds and allowed them to grow for a few years before producing new seeds. He sowed the new seeds and continued doing so for years, eventually selling far more seeds than were purchased. By investing his seeds, he would have made a much different profit than you did by trading your seeds.This is simply the distinction between investing and trading. Let’s look at 5 key differences between investing and trading to learn the same in financial markets.
- Time period of holding:
Trading is the practise of holding stocks for a set period of time. It could be once a week or every day! Traders hold stocks until they achieve short-term high performance, whereas investors buy and hold. Investors put their money to work for years, decades, or even centuries at a time. Short-term market fluctuations are insignificant in a long-term investing strategy.
- Risk involved:
Without a doubt, both trading and investing involve capital risk. Trading, on the other hand, has a higher risk and higher potential return because the price can go high or low in a short period of time. Benefits of Investing in a share market is a skill that must be learned over time. It has lower risk and lower returns in the short run, but if held for a longer period of time, it may deliver higher returns through compounding interest and dividends. For a longer period of time, daily market cycles have little impact on quality stock investments.
- Traders vs Investors:
Traders invest money in a stock for a short period of time. They buy and sell quickly in order to capitalise on the market’s higher profits. Missing the right time can result in a loss. They examine the current performance of the companies in order to hit higher prices and book profits in the short term. Investors avoid trends in favour of investing in value. They invest for a longer period of time while keeping a close eye on the stocks they own. They patiently wait for the stock to reach its full potential. Those who achieve their financial objectives are ultimately successful!
- Magnification of Capital:
Traders monitor the market’s stock price movement. If the price rises, traders may sell their stocks. Simply put, Online trading is the ability to time the market, whereas investing is the art of creating wealth over time by compounding interest and dividends by holding quality stocks in the market.
- Skills required:
Traders are skilled, technical individuals who time the market and learn market trends in order to maximise profits in a short period of time. It has something to do with market psychology. Investors, on the other hand, research the stocks in which they wish to invest. Investing also entails learning business fundamentals and making a long-term commitment to stay invested. It has something to do with the company’s philosophy.
With that all being said, the fact is both trading and investing are great instruments for growing your wealth. Based on their individual financial goals and skill set, one can choose to be a trader or Investor or even both. Irrespective of what you are choosing, we at Clicqndtrade can trade can help you with our wide range of financial services.