Stock trading and investing are two methods to make money in the stock market. While many might think they are the same, there are a lot of differences between these approaches.
Read on to know the differences between stock trading and investing.
People put their money in the stock market to earn great returns. While investors, as well as traders, can buy and sell stocks using an online trading platform, their approaches might differ. While some might want to make trades to earn returns quickly in the short term, some might want to stay invested for the long term to earn significant returns.
Often, traders enter a stock to make returns in a short time. However, investors prefer to hold their position and ride out the market ups and downs to make substantial returns.
Let’s take a look at the differences between stock trading and stock investing-
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Period
The timeframe is one of the most important factors when understanding the difference between stock trading and stock investing. In case of the trading approach, the timeframe is shorter compared to the investment approach.
Traders hold a stock for a short period of time, such as a day, week, or a few weeks. Once the trading goal is met, the trader sells the stocks. However, investors follow a buy and hold approach. They make stock investment after researching it. Investors hold their positions for a few years or decades. The investment approach can help in lowering the market’s short-term ups and downs.
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Capital Growth
Traders trade based on the price movements of stocks. In case the price of a stock goes up, they might sell it. If the price goes down, then they might buy the stock and sell it later to gain returns. In order to become a successful trader, a person needs to have the knowledge of timing the market.
Investors invest in a stock with the aim to stay invested for a longer duration. This allows them to earn wealth over the investment tenure. Investors don’t need to time the market as they plan on staying invested to ride out the market ups and downs.
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Risk
Investing in the stock market as well as stock trading are risky options. But trading can be riskier as the trader needs to time the market correctly and keep a track of the market constantly. The short-term market movements have a huge impact when trading in stocks.
While investing is less risky, investors need to research before making an investment. They need to check the company’s fundamentals when planning to invest in its stocks. By selecting a good company, they can lower the risk and make substantial returns over the long term. Alternatively, people can take help from an investment consultant to pick the right stocks.
Trading or Investing- Which is Better?
A person needs to choose an approach based on his/her requirements. People who want to earn quick returns can opt for trading. They will have to buy and sell quickly to gain higher returns. Traders must analyse present performance of the companies and book profit when they hit the target price. Investors can select companies that indicate great growth in future. Hence, they can make high returns by investing in such companies.
