Investing and trading are two contrasting methods of making profits from the financial markets. Generally, investing is long-term while trading is short-term. The two have different time frames and strategies. Investors look for higher returns over a longer period through a buy-and-hold strategy. Traders, on the other hand, only do buy-and-sell for a few days or months and make use of the fluctuating market trends and positions over a shorter period, grabbing smaller but more frequent profits.
In reality, many people do not know the difference between the two and who they are – an investor or a trader. Thus, they occasionally use inappropriate strategies in what they are doing, which leads to a lot of risks. Most of them believe that they are investing, but are actually trading with the stock market. This deranged mindset and measures are the primary reasons why most of them quickly lose all their investments within a few months.
It is important to find out whether you’re an investor or a trader because each uses different methods and strategies during buy-and-sell.
So how do you determine what you are and what style is best for you? Keep reading and you’ll find out.
The objective of investing is to progressively gain profits over a long period through the buying and holding of bonds, mutual funds, stocks, and other investment mediums. Investments are often held for a couple of years, or decades, making use of incentives like dividends, interest, and stock splits. While stock markets fluctuate, investors will endure the declines with the possibility that prices will ricochet, and any losses will eventually be reclaimed. Investors are usually more concerned with market scenarios, such as management forecasts and price-to-profit ratios.
Trading includes more regular transactions, together with the buying and promoting of commodities, forex pairs, stocks, or other instruments. The purpose is to generate returns that surpass buy-and-hold investing. While investors may be satisfied with annual returns of 10-15%, hopeful traders might try to look for a 10% return each month. Trading profits are gained by buying at a lower price and selling at a higher price and vice versa or known as short selling.
Though investors wait for less profitable positions, traders always try to make profits within a definite period and commonly use a preventive “stop-loss” to automatically terminate losing positions. Traders frequently use technical analyses, like moving averages and vague oscillators, to search for highly profitable trading setups.
Traders usually pick their trading style depending on factors such as account size, time dedicated to trading, personality, risk tolerance, and trading experience. Traders typically fall into four categories, which are:
You are aware that the stock market provides an array of opportunities to earn profits, but you are not completely sure how and when to buy and sell or have known any strategy that matches your personality. Either way, here is a short run-through of some of the known types of traders:
Investing and trading are contrasting approaches to generating profits from the financial market. To delve deeper, here are key differences between the two strategies:
It is important to decide if you are a long-term investor or a financial market trader, so you can pick the best strategies that match your personality, available funds, and schedule. If you know yourself and financial status very well, you can easily prepare a roadmap to success by nailing down your objectives one by one.