Stock investment and trading seem more or less the same by looking at the profitability included in it but in fact, there is a difference between stock investing and stock trading. Basically investing and trading are two different methods of generating profits out of stocks in the financial market. Here is FinanceShed’s attempt to explaining the difference between stock trading vs. stock investing.
Period of Holding
When you go for trading, it is all about holding stocks for a short period of time. This short period can be for a month, a week or often a day there is no restriction of time when you go for trading. Traders trade in the stock while buying and selling in a shorter duration of time whereas, on the other hand investing works on buy and hold principle. Investors invest their money in stocks which are likely to increase price in a future period. This period may be for some years or more than that and short term market fluctuations do not affect the long-running investing approach.
There is a risk factor attached to both tradings as well as investing. Trading involves higher risk as compared to investing as it is affected by the short term price fluctuations. Trading also involves higher potential returns as the price might go high or low in a short while. Investment, on the other hand, needs a proper study of market conditions pertaining during the current period as well as future changes that are going to take place. Investment, in a shorter period, has lower returns and carries lower risk but if the decision taken is correct then it gives higher returns along with dividend income to the investor.
Long term Planning
The term of your investment depends upon your will to take risks and take advantage of time. You need to learn the trend of the market if you want to go for investing and then take a decision regarding which stock to invest in. You also need to have a detailed analysis of upcoming trends and demands in the market in order to invest in profitable stocks. When going for trading long term planning is not necessary as current trends are the profitable criteria. In either traders or investors should be skilled, technical individuals who time the market and learn market trends to hit higher profits in the stipulated time. Thus investing or trading depends highly on planning for the long term as well as short term and going for a market trend.
Which one you should go for – Trading or Investing?
Going for trading or investing is completely the decision of an individual whether he is willing to take a risk or not and what are the financial requirements of an individual. But before deciding if one should try to clarify certain things. The first thing you should be sure about is the timing you want to devote to your investment or trading. If you cannot read charts and graphs on a daily basis you can go for long term investment. You also have to do a lot of analysis regarding financial statements, the company’s history, and growth potential while going for investing. If you are going for trading you just have to look at the market trend and take the decision. Thus it is the question of personal judgment your willingness to put energy in it.