What’s the Difference between Stock Trading and Investment?
The answer to this question is pretty simple to understand. The main difference has to do with time.
When it comes to stock trading, you’re buying and selling shares in companies within a short window of time with the goal of making a profit in the shorter term. To do that, traders jump in and out of stocks within weeks, days, even minutes. Swing traders hold a trade for days or weeks. Day traders are focused on trading that stock within a day and scalp traders may hold a position for just a few minutes before selling.
However, it takes a bit more time with investors. Stock investing is more about buying and holding shares for longer-term gain. That means months, years, even decades. You might buy a small percentage of shares, or a larger number of shares, or the entire company for that matter. With investing, it matters not how much you buy, but how long you wait.
But how do they know how long to wait? It depends on the Investor’s analysis, and the valuation they’ve gleaned from research they’ve done on the company’s valuation over time.
The Benefits of Trading Stocks
With the help of the technical analysis traders try to predict the direction of the stock and the possible profit and based on this analysis they buy and sell stocks and they can do it as often as they like. They buy at a specific price and at a certain time, and then that stock is theirs to trade. Some stocks will be bought and held a bit longer than others, because they may generate a steady stream of income for a short window of time. While other stocks are bought and sold within a few hours, and sometimes minutes, because that’s what their analysis has indicated will generate the most profits.
The Benefits of Buying Stocks
Stocks present an investment opportunity that can appreciate significantly in value. The first thing to note about investing in stocks is that shares are not backed by any government or company, but actually represent ownership in a company or a business. If a company’s stock rises in value, it’s because of the company’s own merit and its ability to make money through sound management. The only risk with stock investment is that shares could depreciate over time.
So, the main thing that helps to differentiate investing and trading in stocks is timing. Short-term gains are more for the traders, while investors buy shares for a longer-term reward. Investors and traders also have a different focus. Investors study a company’s longer-term valuation, while traders are keyed in on shorter-term events that could make a dramatic impact on the stock’s price.