Trading is a method of holding stocks for a short period of time. It could be for a week or more often a day! Trader holds stocks till the short term high performance, whereas, investing is an approach that works on buy and hold principle.
Investors invest their money for some years, decades or for even longer period. Short term market fluctuations are insignificant in the long running investing approach. Traders look at the price movement of stocks in the market. If the price goes higher, traders may sell the stocks. Simply, trading is skill of timing the market where as investing is an art of creating wealth by compounding interest and dividend over the years by holding quality stocks in the market.
Undoubtedly, both trading and investing imply risk on your capital. However, trading comparatively involves higher risk and higher potential returns as the price might go high or low in a short while. Since investing is an art, it takes a while to develop. It involves comparatively lower risk and lower returns in a short run but might deliver higher returns by compounding interests and dividends if held for a longer period of time. Daily market cycles do not affect much on quality stock investments for a longer time.
You would watch skillful players in the team who are expected to strike fours and sixes to score higher in a one day match. Whereas, the art of the game is seen in the test match! There are two types of players in the equity market, investors and traders. The names are often considered interchangeable. This assumes that investors and traders are the same. Investing and trading are two different mechanisms employed to make a profit in the financial markets. Though both investing and trading may appear as parts of the same process for someone who is relatively inexperienced in the financial market, in reality the two are far from being similar.
Investing is traditionally related to buying stocks or other financial instruments that are expected to fetch returns over a long period of time. They are often held onto like family silver for several years. For this reason, it is important that investors select stocks or bonds of companies which are expected to grow in the long term. Thus, investing involves intense fundamental research about the potential investment target, be it a stock or a long-term bond.
The aim of an investor is to create a balanced portfolio of different stocks and bonds that give returns through increase in value as well as dividends or interest income. This enables him or her to attain financial security. A recent report from Bank of America reveals how being out of the market can be so damaging.
The result: a mere 28 percent total over the entire period, from missing fewer than total days. You ride out the bad days, because the market as a whole has been on a long-term upward trajectory.
You create a tax liability every time you realize profits on an asset sale. So traders who bounce in and out of the market are realizing profits or losses all the time. That reduces their ability to compound gains, because they have to cut the IRS in for a slice of every gain they realize. In contrast, investors tend to let investments run. In other words, they effectively force the government to give them an interest-free loan by deferring their taxes, and they continue to compound on the full, pre-tax amount.
Not bad! And if you decided to sell then? The evidence is generally clear that investing is a strategy that works better for most people. Can some people consistently beat the market?
Absolutely, no question. This approach follows the spirit of being an investor — taking a long-term mindset and letting the businesses generate gains for you. How We Make Money.
Editorial disclosure. James Royal. Written by. Bankrate senior reporter James F. Royal, Ph. Edited By Brian Beers. Edited by. Brian Beers. Brian Beers is the senior wealth editor at Bankrate. Traders jump in and out of stocks within weeks, days, even minutes, with the aim of short-term profits.
What matters to traders is which direction the stock will move next and how the trader can profit from that move. Investors have a longer-term outlook. We reviewed providers to find the best online platforms for day trading. Timing is the starkest difference between traders and investors, but their focus also differs dramatically. So-called scalp traders might be in a position for just minutes. Day traders are focused on the trading day, while swing traders invest for days or weeks.
If you're interested in trading, here are some tips for minimizing risk:. For example, you might decide to sell if a stock rises or falls a certain percentage.
0コメント