(selling house to investor, companies buying houses, investors buying homes, home investors near me, home investors, 1031 dst investments, dst properties for sale, selling investment property, selling your first home and buying your second, property investment funds, private equity buying homes, investment firms buying houses, hedge funds buying homes, real estate property websites, real estate investment management, selling rental property with tenants, property funds, find real estate investors, core real estate funds, private real estate funds, private equity real estate funds, property investment management, private equity real estate investment, find a realtor, best realtor near me, real estate leads, best real estate agent near me, real estate crm, realtors near me, real estate agents near me, local realtors, listing agent, property agents near me, buyers agent, best home buying sites, property agent, real estate agent, aal share price, jp morgan stock, adp stock, six flags stock, prudential share price, bac stock, ally stock, wealthscape investor, jp morgan share price, gold investing, clorox stock, ally invest, fidelity roth ira, trading account, portfolio management, online trading, fidelity brokerage account, yahoo finance recently viewed, open door realty, orchard real estate, estate agent, real estate brokers near me, orchard homes, realtor companies near me)

What is the difference between investing and trading
What is the difference between investing and trading

What is the difference between investing and trading?

In general, there are two common approaches to making money from the market, namely investing and  trading . Although both use similar assets or instruments, there are differences between investing and  trading  that must be known.

Investment is basically an activity carried out to build assets or wealth in the long term, while  trading  is an activity carried out to generate profits in the short term, even for a relatively short time. 

The most common thing that distinguishes investing from  trading  is the mention of both actors. If investors are people who carry out investment activities, then  traders  are people who carry out trading activities.

However, there are other differences between investing and  trading  that you need to know. Anything? Check out the following explanation.

Difference between Investing and  Trading

Although it has been explained briefly about the difference between investing and  trading,  many people are still confused or need a more detailed explanation of the difference between the two financial activities. Apart from the differences in the name of the perpetrator and the timeframe used, here are some things that distinguish between investing and  trading.

1. Purpose 

When going to invest or  trade,  of course the perpetrator has a purpose. If investing aims to build assets or wealth in the long term or over a long period of time, then  trading  aims to gain instant profits in the short term, aka a short time span.

For example, an investor in a stock instrument invests to generate wealth by buying a stock that is of good value and holding it for some time before the stock is resold at a high price. Meanwhile, a  trader  will buy shares for resale in a very short period of time. 

To determine when is the right time to make purchases and sales, several considerations are needed. For example, in investing, buying or selling decisions are not influenced by the level of market fluctuations because the goal is long-term goals.

See also  Cheapest Way To Buy Shares

It is different with the decisions that  traders  have to take to make a profit. A  trader  must be observant in seeing market fluctuations because it greatly influences decision making. If you make a wrong move, it could be a loss.

The timeframe itself also varies. Long-term investments are usually made in a period of three years to decades. Meanwhile,  trading  is carried out on a daily or weekly timeframe.

2. Risk 

After determining the purpose of investing or  trading,  of course, the perpetrators of the two financial activities must see or consider the existing risk profile. This is important because each transaction in the capital market has a different potential for profit and a different level of risk.

An investment can be said to have a low level of risk if the potential profit is also low and can be obtained in a relatively short period of time. Conversely, a type of investment that has the potential to provide high returns tends to have a high level of risk.

In the world of  trading,  almost every transaction carried out carries a fairly high level of risk of loss. This is due to the dependence of  trading  activities on the level of market fluctuations, both the stock market and other instruments such as foreign exchange and commodities. However, of course the benefits derived from  short-term trading  are greater than long-term investments.

So, if in investing you can choose which instrument suits your risk profile, then in  trading,  you must be prepared with the level of risk that exists.

3. The profile of the perpetrator

The next difference between investing and  trading  is the actor’s profile. This is closely related to the level of risk for the two financial activities. In investing activities, an investor can have a low risk profile by studying the company’s fundamentals and the potential of the business sector.

See also  Best Forex Trading Sites

After knowing the risk profile, investors will buy shares in accordance with the level of risk they have and hold the shares for a certain period of time. This investment strategy is carried out to create wealth with compound interest and the acquisition of profits or dividends.

Meanwhile,  trading activities  will only be carried out by people who have a high risk profile. Traders  are usually people who are ready to suffer big losses in short span of time. Therefore, a  trader  is required to be proficient in conducting technical analysis of stocks, watching market fluctuations carefully, and making the right decisions.

That way, a  trader  will be able to know when is the right time to buy or sell his assets. People who enter the world of  trading  must be actively involved in the market so that they are able to find the right time to buy and sell to get the maximum profit.

4. Benefits obtained & accompanying elements

This is one of the indicators that is the difference between investing and  trading,  namely the benefits derived from these two activities and the protective element that accompanies them. 

In investing, an investor can get benefits in the form of dividends, bonuses, stock splits, and others. Meanwhile, in  trading, trader  will only benefit in the form of very large profits from selling assets that are carried out properly.

If you are a beginner in the world of investing and  trading,  then keep in mind that the big profits obtained from  trading  activities are not merely the result of transactions. You also need to apply  the right trading  strategy so that you can see price movements in the market carefully. 

See also  4 tips for investors from a young American who made over $1.4 million on the stock market

Apart from the benefits, there are also differences between investing and  trading  in terms of the protective element that accompanies the two activities. In the investment world, the decline in stock prices has no significant effect on the losses that may be felt by investors.

If investors have purchased shares of companies that have strong fundamentals, the company’s stock price will recover over time. Moreover, the investment objective is a long-term goal.

In this case, investors only need to pay attention to the company’s performance on a quarterly or annual basis and how much profit investors get from the company’s performance.

This is different from  trading  where the profit value will be greatly influenced by the level of daily or weekly price fluctuations. Therefore, a  stop loss  protective element is needed as a limit to the losses that a  trader may experience . 

The loss limit is not determined by other people or the market, but by the  trader  himself. So, if the price movement in the market is not in accordance with the  trader  ‘s wishes and touches the  stop loss,  then the order placed is stopped automatically so that the position held by the trader at that time will be sold.

On the other hand, when the position is profitable,  the trader  has a protective element called  take profit . This limit is used to limit how much profit a  trader wants to receive  so that the amount is in accordance with the wishes or plans that have been determined.

That’s an explanation of what the differences between investing and  trading  are that you need to know.