- Trading and investment are similar to sound. But there are some basic difference between trading and investment.
- If you take the point of view of cricket then Trading is like a T20 match and Investment is like a test match.
- This example is the best to understand the differences.
- Basically the differences in the speed to get the returns.
Now let’s know the differences between trading and investment.
What is Trading?
- Trading is a financial art of earning money in a quick time.
- Trading is the process where you exchange goods and services between two entities.
- You have to be aware of the market. Because trading is much risky option for investment.
- If you wish to be a trader then you need a lot of technical knowledge.
- Without any technical knowledge, you can’t analyze the technical.
- If you need to understand what is trading and more about trading then go through this
article: What is Trading?
- If you take the concept of a cricket match, then trading is also a quick process. In the T20 format, the batsman always looks for opportunities in a quick time.
- Same as the traders look for the opportunities to earn the profits in any instance.
- However this is very much risky because of the reduced margin of error, but if you gain then it is more rewarding.
Types of Trading
We can find many types of trading. Each of them has it’s own characters and benefits.
- Day Trading
- Swing Trading
- Momentum Trading
- Position Trading
To invest in stocks open a Demat account.
What is Investment?
- Investment is a kind of financial way to get engaged with the financial market.
- Investment is like a long term process.
- When you buy a stock or mutual fund and hold it for a long time then it is called Investment.
- Investment is like a passive source of income. For those who don’t watch the market regularly.
- This is a less risky option than trading.
- After buying a good stock you need to keep patients and wait to grow up the company and increase its stock’s value.
- When the stock price goes higher sell it and get the profits.
Investments are like a test match. The batsman shows all his patients and grits to build up a innings. Holding long on the pitch provides the more potential to hit a good knock.
Similarly, if you hold a stock for a long time with patients you will get the reward.
Type of Investments
As with trading, there are several types of investments are also there.
- Growth Investing : This is the approach for the growing stocks. Find a growing potential stock and purchase it and in the mean time the price increases. This much a risky option of investment.
- Value Investing: In this approach investors buy a good and well-established company’s stocks, by analyzing its fundamentals. There is a slow growth but it is steady. Also there is less risk.
Difference Between Trading and Investment
There are basically three difference between trading and investment.
These are the basic differences. You can find it after reading the article.
1. Approach Towards Trading and Investment
- The curtail thing of trading and investment is approach and the method.
- For trading, you can use the technical analysis like the price movements, chartings, and numbers, etc. This is a very critical process to analyze it. But investments need the fundamental method to analyze that how the company will grow in the future.
- Professionals use the technical method to trade. But investment is for those who don’t watch the market regularly and don’t have the technical knowledge.
- The technical analysis just analyze the pricings and numbers. The traders don’t care about the fundamentals of the company. But investors mainly focuses on the fundamentals because this method helps for long term investments..
- For long term investment it is important to know the company’s growth potential. But for trading you just focus on the price movements. Pick one price action and grab that opportunity.
2. Timing of Trading and Investment
- Timing is the key difference between trading and investment.
- Trading is the shorter process and investment is a long process.
- For holding long term you should examine the company so closely as to know the company’s future growth and profits. But for trading just analyze the trending price movements. The traders use the short time movements and make their profits.
- Traders closely examine the everyday trend of the stock and make profit from the short movements.
3. Risk of Trading and Investment
- Trading is the riskiest option to participate in the financial markets. Because it uses the volatility of the market and has less time to trade. But investments use the long method to stay in the market. That’s why it is risk free.
- Trading makes profits in a quickly time so it reduced the margin of errors. But in investments, you can get sufficient time to make profits.
Other Difference Between Trading and Investment
|Knowledge||Requires proper knowledge.||You can invest by analyzing the fundamentals.|
|Methods||For short-term and technical methods.||For long-term and fundamental methods.|
|Capital Growth||Very fast, within a trading session.||Needs lots of times, many months to many years.|
|For whom||Professionals do trade.||You can do it as a passive income source.|
|Effort||Needs lots of effort to analyze.||Needs less effort as it is easier.|
|Profit and loss Potential||Both have a higher potential.||If you hold for long then the profit potential automatically increases.|
- Trading is a good investment option to earn money regularly. You can earn a good income by trading.
- Anyone who is over 18 years can trade in the stock market. But it is a risky investment option. Trading has a huge risk factor.
- Then you can do the investment.
- Also, every one can’t do a trade because it needs lots of technical knowledge and a good amount of capital. So before investing gather trading knowledge properly and take risk as how can afford.
- Thank you for reading this article. Hope this helps you to know about trading.
- Wish you safe and profitable trading and investment.
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