Difference between Investing and Trading
Investing and trading are two different methods of making money in the financial markets. There is a thin line between investing and trading. Let us see how investing differs from trading!
It refers to gradually building wealth over an extended period of time by investing in a portfolio of stocks, a basket of stocks, mutual funds etc. It does not involve frequently buying and selling of stocks, commodities etc. The investment is held for a long period of time and the investor usually expects a 15-20% profit in a year. People who usually remain busy prefer investing than trading as in trading one need to spend the entire day to track the price movement of the stocks.
Investors generally invest in the stocks of quality companies with bright futures, and they don?t need to focus on the intraday price movement of the stocks, rather they are more concerned about the long-term price movement of the stocks.
Trading refers to frequent buying and selling of stocks, commodities, currency pairs etc., in order to generate faster returns. In trading, the profits are generated by buying shares or commodities at a lower price and selling them at a higher price within a short period of time, on the same day or within few days or weeks. In trading, a trader's intention is to earn more profit in a short period of time, around 10-15% profit in each month. To be a successful trader you are required to have a sound knowledge of market trends and how it works.
Traders often use technical tools, like moving averages and stochastic oscillators, to know about the high-profitability setups. The trading style of a trader is based on various factors like amount invested, amount of time devoted to trading, trading experience, risk tolerance and personality.
In an organized stock exchange like BSE, NSE only registered members are eligible for trading. The registered brokerage firms provide services to individual traders and charge a certain amount as commission for their services.
Some of the key differences between Investing and Trading based on the above information are as follows: