Investing and trading are two of the most common ways to earn money in the stock market. Investing, in my view, is better for beginners who are just starting out and are more interested in the stock market.
What’s the difference between investing and trading?
Example 1: if you acquire a stock, keep it for a long time, and then sell it for a profit after five years, you are called an investor.
When a trader sells or buys a stock within a day (until the market closes), it’s dubbed trading. Trading may take a minute, an hour, or many hours, depending on the trader’s discretion.
To develop long-term wealth in a financial market, investors focus on long-term capital appreciation in the equity market, which is a long-term period of time, and they profit from bonus-stock splits and other advantages of long-term equity market investment
If you are a trader, your primary goal is to produce short-term profits and sell your stock, but you have a good understanding of the market.
When it comes to making money, both trading and investing are dependent on a person’s mindset and expertise.
Charges:
It’s important to know the fees associated with both trading and investing when researching the stock market. Full-service and discount brokers offer these services, but investors with substantial sums to invest and solid investments to make for the long term face higher fees, according to the brokers.
If you ask a stockbroker or financial institution about the costs of trading, they say it’s less expensive than investing from their perspective.
Upkeep of the account:
To keep equities for the long term, an investor will need both a demat account and a trading account; however, traders simply need a trading account and do not need a demat account.
Advantages in Trading:
- On the same day, their money is returned to them.
- Trading requires just a tiny amount of money.
- Prices are cheaper than those of delivery or investment.
- This option is open to those who want it most.
- Unfavorable aspects of trading
- An organization cannot provide a long-term advantage to them.
Like a bonus, stock splits, dividends, rights issues, etc..
Selling stock within a day’s time period might result in a loss or profit, but the risk status is greater than investing, and this causes more mental stress as the market goes up and down.
Benefits of investing include:
- They may help a firm in the long run.
- Such as a dividend, stock split or right issue.
- Because of their emotional control over all types of shares traded in all sectors, they have a lower risk status than traders.
- To sell a stock, there is no time restriction.
Disadvantages of putting money into the stock market:
- It’s challenging to find the best stock.
- Brokerage fees that are too high.
- Interested in studying the company’s current and future business fundamentals in the context of the company’s historical and current operations.
| Trading | Investing | |
| Aim/goal | Within a few days or a few weeks, the aim of the trader is to make the most money possible. | The goal of the long-term investor is to build wealth. |
| Benefits | Only the short-term gains of buying and selling shares are reaped by the trader, who does not benefit from the company bonus or other benefits. | Investors gained ownership, bonuses, stock splits, and rights issues as a result of their investments. |
| Fluctuations of a market | Daily market fluctuations are affected to the day trader | Market fluctuations don’t affect the investor |
| Back-up /protection | A trader has a stop loss tool to protect their share | Investor follows the news regarding the company and holds the stocks |
| Analysis /indicators | Trader involves only the technical analysis like charts and indicators (RSI, MACD, volume) etc…. | The fundamental analysis involves in investing like EPS, P/E ratio etc.. |
| Time duration | Short term period | Long-term period |
| Risk | High | Low or medium |
| Belief/trust | Trust the indicators and market news | Trust the past and present and future performance of the company |
| Expected returns | 5-10% | 8-12% |
| Brokerage charges | Charges will be low | Charges will be high and moderate |
| Accounts required | Trading account | Demat +trading account |
Both trading and investing are effective strategies to make money in the stock market, but they are two distinct approaches to the same goal.
If you have the time and desire to keep up with the financial news and accounts, then investing is the best option for you. However, if you’re a fan of charting and trends, then trading is the best option for you.
