29.04.2022 Crypto Basics By George Gus

Difference between trading and investing

Difference between trading and investing

There are two ways to make money on the stock exchange: investing and trading. And although most laymen do not see the difference between these two concepts, there is a huge difference between the actions of an investor and a trader.

Investment terms

An investor does not pursue immediate profit, he plans an investment horizon for a period of at least a year, for the most patient it is even up to 20-30 years. At the same time, he plans to profit not only from the growth of assets in the long term but also from the regular receipt of dividends and coupon payments.

The main task of a trader is to get a profit as quickly as possible. To do this, he seeks to buy an asset cheaper, and sell it as expensive as possible in the shortest possible time. It is not for nothing that a trader on the stock exchange is called a speculator, he earns on volatility, that is, on the difference in price, while the period from the moment of purchase to sale can be from several minutes to several weeks.

Trading allows you to get much more profit in a short time than investing, it can be the main source of income.

Choosing a strategy

Before investing in a particular asset, an investor carefully studies the history of the issuing company, monitors how long and how regularly dividends are paid, and whether there are other fundamental factors that testify to the reliability of the company. After purchasing the assets, the investor is not interested in short-term fluctuations in the value of securities, he takes this completely calmly, as he is focused and confident in making a profit in the long term.

A trader, buying or selling shares, relies on technical analysis at various time intervals, considers the dynamics of price movements, and seeks to identify patterns in order to guess the movement of quotes for future periods. A competent trader takes into account both the global economic situation and changes in the position of corporations; the volatility of stocks often depends on this. This skill allows him to reduce the risks that are very high in trading.

Possible risks

Investing is considered a safer investment than trading, as stock markets tend to rise in the long run. If you buy the most reliable securities, you can safely watch how they become more and more expensive over the years.

When trading speculatively, the risk is much higher, and the possibility of being at a loss always exists. One untimely or wrong decision can lead to huge losses.

Personal qualities

A reasonable investor seeks to secure a prosperous future for himself and his loved ones and a good passive income. To achieve this, he creates an investment plan for the long term, carefully adheres to it, and keeps records of income and expenses in order to raise initial investment capital. Then he reinvests the received dividends and invests all the savings in the business. Often starting with a small amount, a determined and persistent investor turns it into a big capital.

Most traders are professional employees and trade on behalf of and at the expense of employers. They work for banks, pension funds, investment companies, and so on. As a reward, they receive a percentage of the profits. If a trader acts in his own interests, he himself is responsible for the result.

In both cases, speculative stock trading requires an instant reaction for correct decision-making and high-stress resistance.

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