Do you Invest or Trade in the stock market? Can you distinguish yourself as an investor or trader? Do you know the difference between investing or Trading?
If Yes, Very Good. If No, then this article can help you understand the difference between investing vs trading.
What is investing and Who are the investors?
Investing is the process of making money in the stock through adequate research. Investing is the process of calculating the value of the business.
As the name says, investors are those who invest for the long term in the market.
What is trading and Who are traders?
Trading is the process of making money in the stock market through speculations. The trader makes money through price fluctuation in the market.
Traders are those who trade. Traders are the individual or institutions which perform the trading operation.
Traders buy and hold stocks for a very short period.
Difference between Trading and Investing
An approach towards the Stock market
Investing is a long term process. Investors buy and hold stocks for a very long time usually for years.
Trading is a short term approach to the stock market. traders buy and hold stocks for a very short period. This period maybe 10 minutes, 1 day, 1 week, or 1 month. Traders never hold stocks for more than one month.
The risk associated with investing and trading
As we all know the stock market is volatile, there is risk in everything you do in the stock market.
Our goal should be to reduce the risk and earn maximum profit from the stock market.
As investing Is a long-term game, so the risk in investing is low as compared to trading.
Trading is more like gambling, you try to make a profit from short term price fluctuation in the stock market.
You can not predict the stock market in the short run, but in the long term, the market is predictable. Because In the long term stocks move due to value in business, in a short-term market move due to emotions in the market, which create demand.
Which is more profitable trading or investing?
This kind of question is very obvious like, Which is more profitable, investing or trading? Who makes more money trader or investor, in the stock market?
To understand this you have to understand how they make money. The trader makes money in the short term. While investors make money in the long run.
In the short run, stocks do not move much. So, traders settle for low profits. In the long run, as stocks grow its price increases. And here compounding works with your money.
If you buy and hold stocks you also get dividends. This dividend money directly goes into your bank account linked to your Demat account.
With investing you get two sources of income, one is stock appreciation and the other is the dividend. Dividends can become a regular source of income if you are holding large chunks of stocks.
Philosophies of investing and trading
Investors believe that they are buying a piece of business and not just stocks. they consider themselves as the owner of the company.
Investors are those who stay in hard times with the business. The investor put their money in the future growth of the business.
They buy the business which has good fundamentals, and based on their research and calculation they calculate the intrinsic value of the business.
They buy the stock when it is selling below its intrinsic value.
They believe, if they pay a high price for good business, they will not make money. So, they wait until the right time comes. And when the time comes they buy a big chunk in that stock.
Investors do not get influenced by the short term price fluctuation.
While the trader buys a stock and hoping to go up to make short term profits. Traders make profits based on market fluctuation.
Traders are more technical guys. They focus more on the charts and trends in the stock market.
Most of the time traders never pay attention to what the company does. They do not need to know what the company does because they buy and sell frequently.
What’s going in the mind of investors and traders?
How the company is making profits?
What are the fundamentals?
Do management has integrity?
How are these stocks will going to perform in the long run?
What’s today’s news about that company?
What is the volume of trade in these stocks?
What is the last trading price?
What are the previous lows and high?
What is the trend in these stocks?
NOTE: In the stock market, both investors and traders are driven by emotions. The difference is that an investor makes a rational decision to buy stocks and a trader makes a speculative decision and pray to be lucky.
Investing and trading is a different approach to the stock market. Have a separate account of investing and trading. Never mingle your investment with your speculation. While doing trading always keep risk in mind.
In investing and trading, Investing is recommended by great investors. Everyone who has become rich in the stock market is through investing.
Comment below, who you are, Investor OR Trader? And justify your answer.