If you wish to make profits from the financial market you will need to know what investing and trading are all about. The terms are often used interchangeably but there are key distinctions between the two. Both traders and investors want to make money by participating in the market. While traders typically exploit the rise and fall of prices in markets over a shorter timeframe, investors aspire for larger returns over a long period of buying-and-holding. But with plenty of resources available on the internet, you can find the best investment apps UK 2021 and can achieve your financial goal in a short span of time. So, while trading is more about short-term strategies that can fetch returns on a daily, weekly, or monthly basis, investing involves a long-term approach.
Top Differences Between Investing and Trading:
- Trading is when you hold stocks for a stipulated time-period that usually extends for a day or more. As a trader, you will choose stocks that can guarantee high-end results in comparison to investing where you simply buy-and-hold. As an investor, you are prepared to wait for the money to grow, which may need years. So, for an investor, short-term market fluctuations do not matter because he is in it for the long haul.
- As a trader, you will monitor the prices of stocks and when these climb higher, you will sell them. So, trading typically demands the skill of knowing when the time is right to buy and sell stocks whereas investing is the skill of building your wealth through holding your assets over the years and compounding interest.
- Whether you choose investing or trading, both are risk-laden. But trading typically involves greater risks as well as possibly higher returns since prices can escalate and collapse in shorter timeframes. Investing, on the other hand, is perhaps less risky because you take time to develop this art. The risks are relatively lower and returns may also be low in the short-term, but you have to patiently wait for higher returns in the long term. So, when you invest in quality stocks over the long term, daily market cycles will not have much of an impact on your returns.
- Trading involves skills while investing is more of an art; traders will have skill and expertise because they devote time to learning how the market works and evaluate market trends. Investors, however, evaluate stocks they are keen to invest in; they need to know business fundamentals and have to be prepared to stay focused and committed for a much longer time.
- Trading involves putting your money into stocks for the short-term. So, the idea is to purchase stocks and sell these fast in order to exploit the market fluctuations. If you miss the right timings, you end up making losses. As a result, you need to keep monitoring company performance to assure yourself of short-term profits. Investors, however, will monitor the stocks remotely but they are in it for the long haul; so, they remain patient until the stocks they have invested in attain their full potential.
So, to sum up, differences between trading and investing are easy to understand if you realize that trading is for smaller profits in a shorter time-period while investing is for growing your money in the long term.