If you explore the stock market world, your eye will immediately catch the words “investing” and “trading.” Thus, let’s find out the difference between them and how to decide which is right for you. Ready, steady, go!

What is trading?

Trading involves frequent transactions to generate quick profits that outperform buy-and-hold investing. Traders seek to make profits within a certain amount of time.

Types of trading include the following:

01 Day trading: positions are held throughout the day only.

02 Position trading: positions are held from months to years.

03 Swing trading: positions are held from days to weeks.

04 Scalp trading: positions are held for seconds to minutes.

What is investing?

Investing is a long-term strategy seeking steady returns by buying and holding stocks. The goal of investing is gradually receiving income over time from a diverse portfolio of stocks.

Investments are often held for extended periods and can generate income from the payment of dividends. Thereby, investors will keep their stocks without plans to sell shortly and ride out downtrends in the market with the expectation that their stocks will recover and perform in the long term.

So, what are the differences between them?

Traders and investors differ in three key ways:

• Time frame
• Activity
• Risk tolerance

Traders are highly active on their trading platforms, watch their portfolios and buy and sell almost daily. They see the market as a place to realise quick, short-term gains. Investors will check the market infrequently in comparison and only make a handful of trades each year.

In addition, investors are usually more risk-averse and aim to diversify portfolios to mitigate losses. With higher returns comes more risk, so trading is riskier than investing.

Traders manage this risk by setting rules on when to buy and sell. They will often employ stop-loss orders to get out of a trade when a stock’s value hits a certain level.

How do traders and investors choose to buy stocks?

Investors rely on fundamental analysis, while traders rely on technical analysis.

Fundamental analysis is concerned with the stock’s intrinsic value and analyses the value of the company and the industry, as well as patterns in the company’s financial performance.

Technical analysis studies market action based on company share price patterns. This analysis uses historical price charts and market volumes to predict what might happen next.

How to identify which type of strategy is perfect for me?

When choosing between trading or investing, you must consider the level of risk you’re comfortable with, the amount of time you spend, and your overall lifestyle.

The edge between trading and investing isn’t always super clear. Traders might buy and hold a particular stock, and investors might sell a stock shortly after buying if they perceive it to be overvalued.

Please remember investing, and trading isn’t mutually exclusive. When deciding on your primary strategy, the most important thing is to educate yourself on the difference and requirements of both investing and trading.