We often confuse two concepts with being one; you probably know what this is about. Trading and investing. Most often, trading and investing are considered to be the same, and if you think that they are – they are not. It is pretty important to know the difference between the two of them. Most importantly, you would have to know what you want to do before you step into the stock market – whether you want to be a trader or an investor. So, let us get to know both the topics in depth.
What is Stock Trading?
Stock trading means buying and selling shares in companies with the motive of making money on daily changes in price. The short-term approach is what sets the stock trader apart from the traditional stock market investor who tends to be in for the long term.
You can get to know all about how to start intraday trading and so much more – once you become a trader. While trading, you can bring in quick gains when you time the market correctly. It also brings along the danger of substantial losses. A single company’s fortunes could rise faster than the market at large, but it could also easily fall.
This is why they say – trading is not for the faint of heart.
But, if you do have the money for it (which means you can afford it), and you want to learn to trade – online brokers have made it possible to trade stocks fast from your phone or laptop.
But, before you can just right at it – you have got to have some serious talks with yourself.
What is Stock Investing?
Investing is the way to set aside money when you are busy with life and have that money work for you, and you could reap the rewards. Investing is a method to a happier ending. But, unlike trading, the investor is in it for the long term. Small changes in the market would not quite matter to you.
Now, everything comes down to which is the better option for you. As a rookie, you would have so much to think about, and also which would be the best for your financial goals.
Let us find out then which is the best choice for you.
What Happens When You Think About Becoming an Investor?
If you are thinking about becoming an investor, you have got to be someone with a long term view, and you would have to do things like:
- You would have to think like an owner and how the business will perform rather than just how the stock would perform.
- Your long-term return needs to depend on the fundamental performance of the business, as opposed to the skills in buying and selling better than other traders.
- You need to think about the day-to-day fluctuations in the stock price, especially when the company has a long-term trajectory is on track.
- As you will be thinking in the long run, you need to shake off the short-term negative market reactions like quarterly earnings and much more.
- You need to have the power to sit patiently with your investments as they grow.
- When you see a decline in the stock or a fund as a potential chance to own more good businesses at discounted prices.
- If you are investing in the funds, you would take a more passive approach, add money regularly to your portfolio over trying to time the market.
- You will also have to sell your investment according to process and discipline.
What Happens When you Think About Becoming a Stock Trader?
Here are some bound things when you think about becoming a trader. When you are a trader, you will concentrate on the short term, and you would be less interested in the business, and you would also have the following things in mind:
- You would be less interested in whether the underlying business will thrive, but you would be concerned about whether the business or the stock would make you good money now.
- You would want to know what other people are thinking about the trade, and as you are not just playing the stock or the fund but also the other players at the table.
- You would look at the short-term price movement, watching charts by the minute to estimate the best time to buy or sell, and you would be timing the market.
- The stock prices would drive your behavior rather than the fundamentals of a business.
- You would be perfect for riding the momentum stocks and looking for stocks that are rising today over the ones that are priced with a margin of safety.
- Your holding period would be short, even a day if you are an intraday trader or maybe weeks – it all depends on your particular strategy.
- You would sell investments according to process and discipline, but trading rules have much more to do with how much you have made or lost than they actually do with the business.
- You would have to pay attention to the market more than you would as an investor, and you will need to make frequent buy and sell decisions.
How to Know What is Better for You?
Does the bottom line come to be in it for the long or short term? If you want to make money fast – then trading is a good thing. But you have to keep in mind that your trading does have loads of risks that you would have to keep out for.
On the other hand, if you are going to be in it for the long term, then investing would be your cup of tea. Moreover, there are lesser risks and less of your money at stake too.
Now that you know both of them individually, it would be a great idea to get started in one that aligns with your financial goals and helps your money grow. But, before you dive right in, you would have to do your part of high-intense research.