Stock Trading vs. Investing:
The Difference
Stock trading refers to the buying and selling of stocks with the aim of short-term profit, having a focus on share prices. Investing refers to the buying of stocks with the aim of long-term gains.
Trading vs. Investing
A trader’s main focus lies on the technical factors with respect to a stock, as in, share price trends and not the long-term prospects of a company. What matters most to a trader is the direction in which the stock will make its next move and the profits that the trade would gain from it.
Investors on the other hand have a completely different view and tend to have a long-term outlook. Their thinking happens in terms of years and hold stocks through the ups and downs of the market.
Time happens to be the most important factor that differentiates traders from investors. The nature of their focus also shows a marked difference. Investors have a tendency to make a thorough study of the potential of the company for its long-term growth and value. Traders have a tendency to make use of the opportunity of small mispricings happening in the market to their benefit.
As said by Ryan Bayonnet, founder of Hyland Financial Planning in Akron, Ohio, “Once the temporary mispricing is corrected, a trader will move on to find the next temporary mispricing.”
A Few Reasons behind Trading Stocks
Money: The scope for making big profits is the main aim, though only a few traders make it to the end and acquire success.
Entertainment: “It’s enjoyable,” as said by the founder of Chastain Wealth Management in Atlanta, Larren Odom. But he strongly suggests investing and to trade not more than 5% of the investable assets.
Education: Matt Saneholtz, a former professional trader and co-owner of Tobias Financial Advisors in Plantation, Florida says that it is good to study the way in which markets work but he is also of the opinion that investment is superior to trading to reach goals of life.
A Few Reasons behind Investing
A way to build long-term wealth is what investing deals about. A recent NerdWallet study revealed the fact that making an investment in the stock market could bring in a return of about millions more retirement dollars rather than saving it in normal savings account or keeping it in cash.
“Trading may feel good in the short-term,” says Brian Schaeffer, an advisor with ShankerValleau in Skokie, Illinois, “but as an investor, time is your best friend.”
Trading refers to the generation of returns which often involves the buying and selling of shares.
Investment involves the steady building up of wealth given a period of time by the process of buying and holding of investment instruments.
Stock trading is more time consuming and “frantic” as compared to investments. Sound investments keep you relaxed without the tension of making buying or selling for months/years.
Which should be the right option—Trading or Investing?
Time becomes the primary factor while making such decisions. Trading would be the right option if hours of time could be spent on reading charts and graphs on a daily basis. Investment would be preferred otherwise.
Playing with the market is not an easy job. It requires extensive study and analysis of the financial statements, growth of the company, history and financial projections of the future as compared to investment.
Small investors could go in for long-term investments with the aim of growing the portfolio. A large investor with the aim of short-term trading could get down with a challenge in the market.
The Importance of Trading and Investment
Both are important for in the absence of traders investors shall have no liquidity to buy and sell stock and in the reverse case traders will have no origin from which to buy and sell.
The Concluding Remarks
Traders are the ones that make wise use of market conditions to their advantage and decide judiciously whether to enter or exit stock positions over a short period of time, taking smaller but much more returns. Investors’ aim is to make large returns over a long-drawn-out period by buying and holding stocks.
