Have you ever wondered whether you should invest in the share market for the long term or you should trade stocks to make quick money? Both Investing and trading are ways to grow your money, but they are very different in terms of work. Trading is for those who want to grow their money quickly, while investing is slow but steady.
Knowing about the difference between trading and investing can help you in your investment journey, it will help you in making the right decision for your financial goals.
In this article, we will explain trading vs investment in simple terms. After reading this article, you will be able to decide which one will suit you if you are unable to decide.
What is Trading in Financial Market?
Trading is the process of buying and selling assets like stocks, forex, or cryptocurrencies to generate a profit in a short period of time. Basically, trading is all about trying to take advantage of price changes in the market. And if we talk about traders, traders are the people like us who keep eyes on the market and act so quickly when the prices change.
Type of Trading
There are some different types of trading like Day, Swing and More:
- Day Trading: As its name says, in day trading, traders buy and sell within a single day.
- Swing Trading: In Swing trading, traders hold for a few days or weeks.
- Scalping: It’s all about making a small profit using quick trades, sometimes in minutes.
In each of these types, traders keep watching charts and staying updated with market news.
What is Investing?
Investing is about putting your money in stocks, bonds or real estate and leaving it for long-term for growing. This approach is slower. In it, you buy something valuable and wait for a long time to let it increase its worth. It is something like planting a seed and waiting for it to turn into a tree, a big tree.
Type of Investing Options
Investing comes in many forms:
- Stocks: In stocks, investors buy shares of companies.
- Mutual Funds: In mutual funds, investors pool their money with others to buy shares.
- Real Estate: In real estate, investors invest in land or property.
So what did you get? Well, Investing is all about building wealth step by step.
Now, we will discuss the key differences between trading and investing.
Trading vs Investing: The Key Differences
Now, let’s come to the main point: What is the real difference between trading and investing? Once you understand it, you will be able to decide which is better for you: trading or investing.
Comprison Based on Time Horizon:
- Trading: It is for the short term, like it lasts for a few hours to a few days, sometimes for a few weeks.
- Investing: It is for the long term, for years to decades for the better return.
If you are someone who can not wait for so long, then trading is a better option for you, but if you are patient, then investing is the thing for you.
Comprison on Risk Level:
- Trading: It has a high risk as prices change each minute.
- Investing: Low risk as you hold your investment for a long time. But it’s too market, ups and downs are part of it.
So can we say that trading needs guts and investment needs calm? Let us know in our comment box.
Trading vs Investing Comparison Based on Effort and Skills:
- Trading: It takes your efforts on a daily basis. You have to watch charts and read the news daily. Or there are some amazing apps you can use for this purpose.
- Investing: You don’t have to be so active; you just a have to research once, invest and wait.
Can we say trading is like a full-time job? Let us know using the comment box.
Trading vs Investing in Terms of Returns
- Trading: Trading offers fast returns, but there is no guarantee you will get a profit. It is always a risky business.
- Investing: It offers a slower return, but it is reliable and less risky.
In trading, you can get 3 to 10% return in a day, but in investment, you may get 8-12% or even more in a year. Return always depends on the market.
Pros and Cons of Trading vs Investing
Trading Pros: Big Potential, exciting, and quick profits.
Trading Cons: It’s risky, stressful, and takes lots of time in checking and stressful.
Investing Pro: It is safe, steady, and grows with compounding.
Investing Cons: It is slow and requires lots of time for big profits.
Trading vs Investment: Which Is Right for You
You can choose trading vs investment as per your personality, financial goal and risk appetite.
Go for trading if:
- You can make quick decisions and take past action.
- You have enough time to monitor the market trends.
- You can take high risks.
- If you can manage your stress and can take right decision under pressure.
Go for Investing if:
- If you are looking for security, actually financial security.
- You know about the power of compounding, and you believe in it.
- If you are okay with ups and downs in the market and you are patient.
- You do not have enough time for daily market tracking.
Conclusion
Both trading and investing are two ways you can use to grow your money. But they are different in many ways. Trading is for people who want to make money quickly. It needs time, lots of attention and skill too. In trading, you will have to absorb the market and make decisions quickly. If you have skill, it can help you to make money quickly but has more risk in it. You can lose your money quickly if you are not careful. Investing is for people who are patient and want to build wealth slowly over time. If you invest, you can be more peaceful because it is safer. In investment, you buy assets like stocks and mutual funds, and you have to hold them for many years.
Are you interested in trading or investing? If so, then you must read our article, Common Mistakes New Investors Make in the Stock Market.
So, this was the comparison between Trading vs. Investing. If you have any doubt please use our comment box. Thank you for reading this article.