The difference between investing and trading

difference between investing and trading

The difference between investing and trading

Investing is when a participant of the stock market buys shares of companies in the stock market for the long term whereas trading refers to the practice of buying and selling shares frequently and making gains out of the differences. Investing is done on the basis of in dept fundamental analysis where the investor thoroughly examines the company’s financials, future prospects, management capabilities and the list goes on, whereas trading is done on the basis of technical analysis and things like short term price affecting factors like results etc.

An individual trying to make gains of the stock market should be clearly aware of the side he is on, whether he is an investor or a trader. Discipline is a very important trait while participating in the stock market and if you decide the side you are on and then stick to it, the chances of you making money would be much higher compared to the ones stuck in the middle. Investing is the art of analysing a company’s particulars in detail and then investing your money in it for the long haul until you think it has reached a valuation from where there is low upside while trading does not concern itself with the fundamentals of the company like its balance sheet or its profit and loss, it only cares about the price movements of the stock.

Trading is a much more technical art to get hold of and requires a high level of skill set and allocation of time to the market in order to be successful. You need skills like technical analysis in order to make money out of trading. The people who want to know How to start investing in stocks? Because It is not a cup of tea for anyone who is new to the world of finance but while investing you have time on your side which lowers the chances of you losing a lot of money. Investing can be simply done on the basis of simple analysis of reports and valuations for the long term. Mutual funds or SIP investments are also considered to be investments and not trading methods, such instruments usually give positive returns in the long run because of compounding which is the factor that makes investing the path to choose rather than trading.

Trading for new comers can be a good tool to learn about the functionality of the stock market but it would definitely come at a monetary cost. It is advisable for any individual looking to enter the stock market to start with investing and then once he/she gets a hold of the workings of the market then start trading some very minimal part of the portfolio in order to actively stay part of the market.

Here at we are strict investors but we keep 5-10% of our portfolios to be utilized for trading because that helps newcomers to be actively involved to know that what is stock market? and gain knowledge about various functions of the market which is invaluable in the long term.

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