Trading And Investing: What’s The Difference

Trading and investing are two completely different animals. Find out the differences and see which one is right for you. Drop a comment on the blog and let me know which one you choose.

Investing and trading are two very different animals and approaches to wealth creation or attempting to make a profit in the market. When it comes to wealth creation in the equity market, investing and trading are the two genres of the field. The goal of investing is to gradually build wealth over an extended period of time; whereas trading involves more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing.

Imagine, today, you and your friend bought an equal amount of seeds to sow in your fields but you sold your seeds to someone in a day because you could earn a profit. However, your friend sowed the seeds and let them grow for a few years till they gave new seeds. He sowed the new seeds and continued this for years and sold a lot more seeds eventually than were bought. By investing his seeds he would have made profit quite different than what you made by trading your seeds. This is simply the difference in investing and trading. To learn the same in financial markets, let’s learn 4 key differences between investing and trading, you could also have a look into binary option broker reviews as it would show the type of jobs that investing and trading agencies deal with on a daily basis.

1) The Bottom Line

Trading is a method of holding stocks for a short period of time. It could be for a week or more often a day! A 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 an even longer period. Short-term market fluctuations are insignificant in the long-running investing approach.

2) 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 the skill of timing the market whereas investing is an art of creating wealth by compounding interest and dividend over the years by holding quality stocks in the market.

3) Risk

Undoubtedly, both trading and investing imply risk on your capital. However, trading comparatively involves higher risk and higher potential returns as the price might go high or low in a short while. Since investing is an art, it takes a while to develop. It involves comparatively lower risk and lower returns in a short run but might deliver higher returns by compounding interests and dividends if held for a longer period of time. Daily market cycles do not affect much on quality stock investments for a longer time.

4) Art vs. Skill

Let’s learn it this way, trading is a one-day cricket match while investing is a test cricket. You would watch skillful players in the team who are expected to strike fours and sixes to score higher in a one day match. Whereas, the art of the game is seen in the test match! Similarly, traders are skilled, technical individuals who time the market and learn market trends to hit higher profits in the stipulated time. It is related to the psychology of the market. Investors, on the other hand, analyze the stocks they want to invest in. Investing also includes learning business fundamentals and commitment to stay invested for a longer term. It is related to the philosophy that runs the business.

Conclusion

Traders put money in a stock for a short term. They buy and sell fast to hit the higher profits in the market. Missing the right time may lead to a loss. They look at the present performance of the companies to hit the higher price and book profits in short term. Investors keep themselves away from the trends and invest in value. They invest for a longer period of time keeping an eye on the stocks they hold. They patiently wait till the stock reaches its potential. Ultimately, the ones who achieve their financial goals are successful!
Going back to our story, you are the one to decide if trading the seeds at a higher price making a smaller profit in a short time is your goal or holding on and growing more seeds to sell at a much higher price, in the long run, is what you aim for.

Let me know in the comments below between trading and investing, which one is a good fit for you. If you’d like to learn more about investing, consider signing up for my FREE 5-day course #Slayinvest 
Disease Called Debt
Facebooktwittergoogle_plusredditpinterestlinkedinmail

on Trading And Investing: What’s The Difference

  1. Joline
    January 15, 2018 at 2:11 pm (9 months ago)

    We’re a little afraid of trading so we go for the long term investment. Though we put a lot of trust on our banker to make the right decisions on our behalf!

    Reply
    • tracie45
      January 17, 2018 at 2:21 pm (9 months ago)

      I agree Joline, I don’t trade either, it is too time-consuming. I prefer investing. It is good when you can trust your banker to handle all your investing needs for you.

      Reply
  2. Heather Johnson
    January 15, 2018 at 6:14 pm (9 months ago)

    I must admit that I knew nothing about trading or investing. Your piece has helped clarify the two topics for me. Thanks!

    Reply
    • tracie45
      January 17, 2018 at 3:08 pm (9 months ago)

      I am glad you found value in this post and received clarification. Thank you for reading and commenting Heather!

      Reply
  3. Francisca Ramos
    January 15, 2018 at 9:47 pm (9 months ago)

    I agree with you! It’s great to invest and sell fast to gain financial success. When selling at higher in price.

    Reply
    • tracie45
      January 17, 2018 at 3:27 pm (9 months ago)

      That’s the ticket buy low and sell high Francisca! Thank you for reading and commenting!

      Reply
  4. laurie beth
    January 15, 2018 at 11:23 pm (9 months ago)

    I tried currency trading after my recent move to Canada. It was fun for a while, but took up so much time. I prefer investing vs. trading, personally.

    Reply
    • tracie45
      January 17, 2018 at 3:29 pm (9 months ago)

      I agree Laurie, trading is very time-consuming! I don’t trade at all, I prefer investing as well! Thanks for reading and commenting!

      Reply
  5. Rosey
    January 16, 2018 at 4:02 am (9 months ago)

    I’d like to trade and hold. It’s been awhile since I was able to invest, but I’m getting closer again.

    Reply
    • tracie45
      January 17, 2018 at 2:06 pm (9 months ago)

      Trading is not for me, it is too time-consuming, however, I love investing. Thank you for reading and commenting Rosey!

      Reply
  6. Scott
    January 16, 2018 at 10:56 am (9 months ago)

    I’ve done both (and still do). Overall I believe investing is much better since you can delay the taxes until you take your profit. But…sometimes you can’t ignore a price spike!

    Reply
    • tracie45
      January 17, 2018 at 1:49 pm (9 months ago)

      I haven’t ventured off into trading yet, and I don’t think I ever will. It is too time-consuming. But I agree Scott, you can’t ignore a price spike. Thank you for reading and commenting!

      Reply
  7. Marielle Altenor
    January 17, 2018 at 2:00 am (9 months ago)

    I feel better investing than trading. I recently bought some Litecoin and Bitcoin (a bit late to the party) and it was fun watching it go up and down for a while but I don’t think I could do this with a huge amount of money.

    Reply
    • tracie45
      January 17, 2018 at 1:47 pm (9 months ago)

      I don’t trade at all, it is too time-consuming. I am not ready for the cryptocurrency just yet. Investing is what I do and have been doing now for over 15 years. It is familiar and I am just more comfortable. Thank you for reading and commenting!

      Reply
  8. mj
    January 18, 2018 at 7:29 am (9 months ago)

    I think I would go to investing, I’m likely to invest than trading. Whenever I planned for earning and growing my money I always put them on investments.

    Reply
    • tracie45
      January 22, 2018 at 5:31 pm (9 months ago)

      Investments are the way to go for me too MJ. Trading is too time-consuming. Thank you for reading and commenting.

      Reply
  9. RAnn
    January 20, 2018 at 11:52 pm (9 months ago)

    I generally invest, but I’ve been known to take some “play” money and trade with it. Unfortunately I haven’t been highly successful.

    Reply
    • tracie45
      January 22, 2018 at 5:35 pm (9 months ago)

      I have never traded but I make sure I invest. Trading is too time-consuming for me. Thanks for reading and commenting.

      Reply
  10. Charli
    January 21, 2018 at 8:43 pm (9 months ago)

    Valuable content! Thank you!

    Reply
    • tracie45
      January 22, 2018 at 5:38 pm (9 months ago)

      Thank you for reading and commenting Charli!

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Comment *