Investing vs Trading: What is the Difference?
People often use the words trading and investing in one breath; but, they are certainly not one and the same thing. Both trading and investing are done for profit making. And both traders and investors seek gains by participating in the market. There are subtle differences between investing and trading depending on the time horizon, attitude of traders or investors, approach, and risks involved.
Investing is when you traditionally buy stocks and other financial assets in the hope of making gains over the long-term. So, investors need to identify bonds and stocks that will grow with time. Crypto trading is an opportunity widely used by investors. The availability of auto trading platforms have been fetching good profits to the investors. Bitcoin storm is a popular crypto trading bot in the market. Visit https://etf-nachrichten.de/autotrading/bitcoin-storm/ to know more about this platform. In short, they will not sell off their assets on a regular basis; only during emergency, or if the assets they have bought have already met their profit targets.
Trading, on the contrary, is when you buy and sell stocks, currencies, bonds, commodities, and other assets over the short-term. The idea is to make gains vis-à-vis short-term price movements. In short, traders prefer market volatility and they must learn to identify lucrative trade opportunities. For this they need to learn the art of reading trading charts and graphs.
What are key differences between investing and trading?
- As regards methods, both investing and trading have different approaches. While investors use fundamental analysis to make investment decisions, traders typically use technical analysis to make buy-and-sell decisions. In fundamental analysis, you will look at the company’s performance over the years, its present financial health, and future growth prospects. In technical analysis, traders consider charts to detect trade patterns. Instead of using a stock’s market price to forecast future price movements, it uses parameters like price trends, moving averages, and volumes to make a decision. Traders are not really concerned with what a company is doing or whether its growth prospects are bright.
- Another key point of difference between investing and trading is in their time horizon. When you buy assets and hold onto these for the long-term, it is an investment. When you buy-and-sell assets over a short period, it is trading. In trading, the aim is to make profits by selling your assets whenever the prices reach a high. This period of consideration can be a day, weeks, or even months for traders.
- Finally, investing and trading are different in terms of risks involved. Both trading and investing places your capital at risk, no doubt, but the risk-return trade off is different. Trading is riskier as compared to investing. In trading, you must take quick and often short-sighted decisions that can backfire. This happens because traders will not decide on the basis of how well a company can perform in the long run. So, trading can fluctuate between lows and highs. But investing is more of a habit which needs time to develop; it can give you returns only after a certain time has passed. Risks are low in investing; returns are also low for the duration that you hold onto the investment. But ultimate gains can be high because of a compounding effect of dividends and interest.
Whether it is investing or trading, make sure to test the waters first before diving into it. Remember never to invest more than you can afford to lose.