Get a Quote
Get a Quote and Find Services to Fit Your Needs 50000+ Satisfied Clients
5000+ Licenses & Registration
15 Branches across India
75 Years + Combined experience
For most individuals, growing their wealth is among the most important goals in their lives. There are many different ways to do it. Two popular methods are trading and investing. Both of them involve money and the stock market. However, it is important to know that they do not mean the same thing.
Trading is more of a fast-paced game wherein individuals purchase and sell stocks or other securities within a short period of time, often with the aim to make quick profits. But when it comes to investing, a lot of patience is required. It involves putting money into stocks or/and other securities for a long period of time, allowing it to grow steadily over years. Both trading and investing have their own risks and rewards, and depending on your goals, patience to achieve them, and risk appetite, you can decide which one is better for you.
After going through this informative blogpost, you’ll have a clear understanding regarding how trading vs investing differ and which one is best suited for your financial journey.
Trading is basically a short-term and volatile process involving taking positions in financial markets. It lasts for a lesser period of time compared to long-term transactions like bonds, ULIPs and mutual funds. Some common examples of trading are stocks, commodities, forex, crypto currencies among other financial instruments.
A short-term trade may last for as less as a few minutes (intraday trading) to as long as several days (delivery trading). Generally, traders depend on technical analysis, volatility and market trends to make quick decisions.
The benefit of trading is that you can earn more profit as opposed to investing. Assuming that long-term investors receive 10–15% of the profit each year, a trader may receive the same 10–15% each month, depending upon their predictions, assessment and decisions.
Although trading might seem tempting, it is important to remember that trading is a high-risk, dynamic, and volatile process of making money where market changes have a direct impact on trading and can result in significant gains or losses.
Whenever an individual trades, the basic rule is to buy when the price is low and sell when the price is high. However, there are several other strategies like short-selling and reverse trading which experienced traders implement to make high profits within a short span of time. For stock market beginners, such strategies are not recommended because of the risk factor they carry.
Investing is a long-term approach where the goal is to build wealth over a long period of time. Investors may use one or more investing schemes such as MFs, buying and selling a stock portfolio, bonds, etc to build their wealth.
There’s no rush in investing as the goal here isn’t to make quick money. Investors must be patient and let time do its job. For instance, if you purchase shares in a company, you basically do it because you believe the company will perform well over the years, and you want to be a part of its growth. This is because if the company grows and earns more revenue, your investment will become more valuable. You know that it probably won’t happen overnight, and are willing to wait.
Investors hold their investments for years and decades and enjoy several perks that short-term traders don’t such as dividends, stock splits, bonus shares, etc.
When investing, the risk of market fluctuations and downtrends is eliminated because prices are always expected to eventually rise, and because the investment is long-term, the investor should not be concerned about a particular downtrend because it will last for a short period.
The fundamentals of the market are more important to investors than the daily fluctuations in upward and downward trends. Long-term investors are majorly interested in market fundamentals like the Price to Earnings ratio (P/E ratio).
Now that you’ve understood what trading and investing are, it’s time to learn their differences. The difference between trading vs investing have been represented in the table of comparison provided below:
|
Parameters |
Trading |
Investing |
|
Definition |
Trading can be defined as a short-term buying and selling of securities to profit from price fluctuations. |
Investing can be defined as buying securities with the goal of wealth creation over a long period of time. |
|
Term |
Trading is short-term. It can be done on the same day, next day, or a few weeks. |
Investing can be done for years to decades. |
|
Financial Goal |
To make quick profits by taking advantage of market volatility. |
To grow wealth by capital appreciation, dividends, stock split, stock bonus, etc. |
|
Approach |
The trading approach is speculative and tactical. Technical analysis and market trends are taken into account. |
The investing approach is strategic and requires patience. Fundamental analysis and financial goals are taken into consideration. |
|
Risk Appetite |
It requires high risk appetite as it involves significant exposure to market volatility. |
Investing is for those with moderate to low risk appetite, based on the asset class and holding period. |
|
Suitable For |
Trading is ideal for active participants who are able to monitor the market on a regular basis and want quick money. |
Investing is best suitable for passive investors aiming for retirement planning or any other long-term financial goals. |
|
Examples |
Buying and selling Nifty options on a daily basis for making quick gains is considered as trading. |
Investing in blue-chip companies for a few years or decades for steady growth is considered as investing. |
In this blog post, we explained to you what investing vs trading are. Investing is about building wealth in a steady manner, over years or decades. On the other hand, trading is about making money in a short period of time, which can range from days to weeks. Sometimes, trades are made in a single session by using intraday trading strategy. Both trading and investing can help you to make money but they require different levels of patience, risk appetite and approaches.
If you want to offer unbiased and personalized investment advice to individuals and business entities based on their financial goals, risk profile, and investment preferences, you must register as a Registered Investment Advisor (RIA) with Securities and Exchange Board of India (SEBI). For assistance, connect with Registrationwala’s RIA consultants.
Q1. What was the first stock exchange to introduce electronic trading in India?
A. The National Stock Exchange (NSE) was the first stock exchange in the country to implement electronic trading.
Q2. What is the difference between trader and investor?
A. A trader is someone who makes short-term trades and is affected by the movement of the share market, whereas an investor is someone who keeps the position or asset for a longer time and is a long-term player.
Q3. What was the Bombay Stock Exchange originally known as?
A. When the Bombay Stock Exchange (BSE) was founded in 1875, it was known as the Native Share and Stock Brokers' Association.
Q4. What is the most expensive share in the world?
A. The most expensive share in the world is Berkshire Hathaway Inc. It is an investment company run by Mr. Warren Buffet.
Q5. Is trading the same as gambling?
A. No, trading is not the same as gambling. Gambling is purely luck-based, while trading involves taking calculated risks.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
Want to know More ?
