So, you’re all set to make an entry into the stock market, but then realize that there’s so much to think about. You come across so many terms, investing, trading, demat account opening, buying, selling, and holding! And now you are confused! If this sounds relatable, then you’re at the right place.
Let’s cut to the chase. There’s no denying that whether you should trade or invest is something that needs to be a well-thought-of decision. However, to put it simply, it’s all about the time horizon you are ready to put in. Trading is more like a T20 match while investing is more like a test match! You must have gathered a fair estimate of what Investing vs. Trading. Read on to find out more about their differences, so that you can decide which strategy is right for you.
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Investing vs Trading
While both trading and investing are related to the stock market, they are two very different concepts. Let’s first understand them individually.
Investing
While investing consists of a much larger scope, in the stock market investing is when you buy the shares/ stocks of a company, mutual funds, bonds etc. to hold them for a longer tenure. Investing aims to benefit from capital appreciation that may happen over time. Depending on your preferences, investing can be active as well as passive.
Did you know, to invest in the stock market, it is mandated to have a demat account? Worry not, the process of demat account opening online is a simple one!
Trading
Trading requires more engagement from you the trader, as compared to investing. While investing is mostly buy and hold, trading involves frequent buying and selling. Therefore, here the aim is mostly to get quicker profits. While an investment generally requires holding for a few months and even years, as a trader you may be looking at profits you make on a monthly, weekly or even daily basis.
If you are planning to get into trading then choosing one of the best share trading apps can make your journey smoother and more fulfilling.
Difference Between Investing and Trading
Let us now take a look at what are the key differences between investing and trading:
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The Time Horizon
Investing is often a long-term commitment. To make the most of your investments it is often suggested that you stay invested for a few years at least. A trading session on the other hand typically lasts for a day or maybe a week at a stretch.
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Capital Growth
As a trader you are expected to be a more hands-on player. Here, timing the market trends and fluctuations can significantly affect the growth of your capital. For your investments, you will have to hold the good quality stocks for a longer term. This not only minimises the risk, but can also get good returns in the form of bonuses, dividends and capital gains.
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The Value
For most traders, a bid is made after an analysis of the market and the market price of the commodity. They await the outcome in a few minutes or hours. As an investor, the evaluation of your shares will be done entirely on the basis of its market value.
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The Risk Involved
Every investment product comes with its own set of risks. When you invest the strategy is to buy and let the capital grow. This long-term feature spreads the risk making it less volatile. On the other hand, trading is all about making the most of short-term fluctuations. This makes trading quite unpredictable and thus, risky.
Investing vs. Trading: Which Strategy Is Right for You?
If you are someone who wants to grow their wealth without the everyday hassle of keeping an eye on the market trends, then probably investing is the way forward for you. You can find some suitable options and invest as per your investment goals and time horizons.
As you may have gathered by now, trading requires more skill and expertise. If you have the expertise and are ready to devote time for real-time analysis of the market, then you can consider trading.
In Conclusion
Here’s hoping that this detailed comparison between trading and investing would make it a little easier for you to come to a conclusion. List your financial goals, understand your risk appetite, analyse the pros and cons of each, and then come to a well-informed decision.
