Trading versus investing
Trading and investing are two different things. And they work differently and carries different risks and rewards. Most newcomers or amateurs get confused in trading and investing. Most often in trader’s life, bad trades turn out to be bad investment in the beginning of his trading carriers.
Warren buffett once said: “calling someone who trades actively in the market, an investors is like calling someone who repeatedly engages on night stands a ‘romantic’”
Let see what the Major differences in trading and in investing are:
Trading versus investing Goals
Trading is all about generating better returns and beating the market. Hence traders trade frequently and do buying and selling of financial instrument often. While investing is all about creating, preserving and building wealth hence buying and holding of investments is basic strategy.
Trading versus investing beliefs
In trading, it is believed that prices moves in trends and rising the trends will make money. While in investing, growth is depend upon how company perform in future which result in rise in stock price as well as regular dividends.
Trading versus investing profits
In trading profit made by buying shares at lower prices or at bottom and selling at higher prices or peak and vice versa. While in investing, profits and dividend are re invested to buy additional shares to build wealth.
Trading versus investing holding period
In trading, traders hold financial instruments for minutes to days to week. While in investing usually holding period is more than a year, sometimes it will be decades to generations.
Trading versus investing returns
An average professional traders earns more than 10% per month taking moderate risk while investor’s wealth usually grows at rate of 10-15% annually.
Trading versus investing tools
Traders for trading usually depend on charts, technical analysis, price patterns, indicators and oscillators. While investors usually look up company fundamentals, future growth prospectus and interest rates and economy cycles.
Trading versus investing strategy
Trader’s follows buy and sell at swing high and lows strategy to make money while investor’s basic strategy is straight and simple buy good company stock and hold it for long time.
Trading versus investing protection
Traders usually uses stop loss orders to protect capital and cut out losses. While investors in bearish cycles follow buy and accumulate strategy and book and diversify in bullish cycles.
I think this will clear your doubts about trading and investing. Especially newcomers do not get confused in trading and investing. These are two very different things.