Trading and investing are the two terms used in the finance world interchangeably. Both words mean the same, but also different if you look closely. Trading and investing are both used to seek profit in the market, but most approaches and methods are different.
Investing may be termed as the long-term approach to seek benefit and trading may be termed as the short-term approach to seek benefit in the market. The basic skill that an investor has is the risk-taking ability and the trader is his patience. Both are risky, and something that proves the ability you possess to make it your goal. Let us read in detail the concepts of investing and trading and how they work.
What is investing?
Traditionally, investment is a means to gain a minimal risk and a low-profit method of building wealth. It is a long-term method that can take years and involves fundamental research of companies that are expected to grow eventually. It may consist of bonds, mutual funds, or shares of stocks. A quite common example of investment is buying gold (coins or jewelry).
Investors do not sell their possessions regularly but tend to wait for the right time so they can make maximum profit unless there is a case of an emergency. It is ideal for those who do not have much time to spend on regular analysis, risks, and profit. Investment is a one-time strategy for making money. There are investors who have bought and held onto those stocks for decades. This way, they also have their original amount saved while enjoying perks like interest, dividends, and stock splits along the way.
What is trading?
Trading is associated with buying and selling financial instruments like shares, bonds, or currencies (like cryptocurrencies). The basic idea of buying and selling over a shorter period is to take advantage of the volatility of these financial instruments. A great deal of technical analysis is required to expertly make the decisions of buying and selling over a brief period. This is buying when the prices were at their lowest and selling them when they are at their highest or whenever the target is reached.
Traders fall into one of four main categories:
1.Position Trader
The holding period is between months to years.
2. Swing Trader
The holding period is between days to week.
3.Day Trader
The holding period is only a day with no overnight positions.
4.Scalp Trader
The holding period is between seconds to minutes with no overnight positions.
Trading may be ideal for people who tend to enjoy gaining benefits using their analysis and experience of the market actively. It may be more profitable than investing but riskier too. If you know how the trading world works, you can make quite a profit from it. Investing in cryptocurrencies is potentially extremely profitable.
