The Difference between Trading and Investing

When we talk about trading you probably think of the New York Exchange trading floor. A scene where all traders meet in person to buy and sell stocks. This is the way that used to be, but now most of the trading is online. Nowadays technology is so advanced that allows you to trade at home and make money.

Trading vs investing. What is the difference?

Being a trader is different from being an investor. Investing is when you spend your money with the hope that you will earn more money in the long term. Trading is when you buy or sell investments. Simply said they are two different approaches in order to earn some money.

An investor is someone that puts his money into something and is looking to make a profit from that asses in the future.

A trader is someone who wants to make money in the short term by often buying and selling stocks. The first one relies on gradual appreciation, while the other on market volatility.

Meanings of trader and investor

To be a trader can mean a lot of things. Many companies hire traders to help them with their investment decisions. For example, if they want the best price for buying some share of a company they hire a trader. Here in this article, we will focus on traders that look to make money.

There are two main things that distinguish trading from investing. The first one is the timing of trades and the other one is the analysis of stocks.

Timing of trades

As we said before investing is for the long term, while trading is something like a short-term strategy. When you invest in a stock you hope that that company will grow over time and then flip it for a profit.

Trading is a fast approach that involves buying and selling stocks to take advantage of short-term fluctuations in prices.

You have day trading and swing trading. Day trading is buying and selling investments on the same day. Swing trading is a process that can last a couple, of days, weeks, and sometimes even a year.

Analysis of stocks

This is the second point of distinction. To understand how the analysis of a company and its stock price varies between traders and investors first thing you need to understand is the difference between the stock price and its intrinsic value.

In theory, the price of the stock only shows the number of buyers and sellers trading that stock at that price at that moment. Past the stock price is the intrinsic value. This represents the actual value of the stocks.

Traders care only about the stock price, while investors are more focused on the intrinsic value. The focus for traders is on the technical indicators, such as trends and historical pricing information.

Investors try to develop a broader understanding of the market and have a very different mindset than the traders.

It is also important to know that traders rely on small info about a company while the investors make deep research about the company’s operations.  

Our summary

Trading is a high-risk practice. Even if you heard people are making money from trading it is something you should avoid.

The reason for this is that you are competing with professionals in this industry that have a lot of money, cutting-edge research, and industry algorithms that can be faster than you can imagine. So it is fair to say that it will be a fight you will end up losing.

We don’t say that you couldn’t make any money from trading. There are a lot of people out there that make living from trading.

You can be good at trading, but trading is similar to poker and it has a lot of risks involved. At the end of the day, if you like the rush, high stakes, and not-so-good odds, it may be better for you to go to a casino.

After this, we can say that investing is the better way to go for an average person. Holding some assets in the long term you have more chances to benefit and earn some nice profit. Surely you will not get money fast but it is probably the safe and more secure way.

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