Trading vs Investing
In this article let's examine what is what. The article is suitable for beginners, but it will also be useful for already experienced traders and investors.
Investing and trading are the two main approaches to trading in the stock markets. They have their advantages and disadvantages, as well as common features and differences. Let's dig deeper and try to put everything in its place and break it down into separate understandable criteria.
Time period
It is believed that investing is a more long-term strategy, while trading has a short-term nature. However, this is not very correct, because there are different trading modes:
Investments, in general, imply medium/long term, which is what they are.
Aim
The conventional view is that the purpose of investing is to build long-term investment portfolios. In what we again encounter incorrectness.
Profit of the company in the past does not guarantee the success of the company in the future, and therefore the formation of long-term portfolios can not justify itself, if we do not take into account rebalancing, reassembly, black and white swans.
The point of investing is to form a flexible portfolio capable of rebalancing and generating income. Income generation in this case comes only from asset growth.
If I were to start investing now, I would not invest in America and the Eurozone, but would buy China, Bitcoin, Ether, precious metals. Other times, the choices would be similarly different.
Looking ahead a bit - it makes sense to build portfolios according to economic cycles.
In its turn, the main purpose of trading is to gain operative profit on a shorter-term basis. Earnings in any market. Playing up as well as down.
Starting capital
You can start out in trading with less capital, while investing usually requires a larger initial investment.
Risk
Healthy investing is less risky than trading.
Investors have more time and opportunity to manage risk and more in-depth analysis of the market and assets.
Traders, on the other hand, often trade based on quick profits and can lose money if their strategy doesn't work out in the moment.
Analysis
Investing is based on fundamental analysis, on the indicators of companies, market cycles.
Managing
Investing requires more active portfolio management during portfolio creation. Most of the work is required to generate that very portfolio, based on market conditions, company performance and forecasters (= predictions based on available company data). As a bonus, you can also add there the consideration of tax and financial issues.
Traders, on the other hand, do not need to base their work on the things described above. Their work is considerably spread out over time. It's a daily routine, very much like a typical job.
Strategies
Investors typically use strategies that focus on a company's future prospects and profitability, while traders use more short-term strategies based on technical analysis.
Reports
Investing requires a broader and more detailed reporting of upcoming changes in financial markets and companies, while traders tend to operate on a narrower reporting basis.
Profitability
Trading can be more profitable if a trader appropriately manages his risks and chooses the right trading strategy.
Investing can bring a smaller income, but it also involves much less risk. It is also worth mentioning that traders use a wide range of instruments, such as futures/non-futures, options and so on. The investor is content with stocks, bonds, mutual funds, precious metals.
Time
Both approaches require a significant amount of time, but investing requires noticeably more effort in the beginning and less over the distance. Trading requires a constant infusion of effort and time.
To summarize, I would like to add only that a good investor will use technical analysis to forecast market behavior. Likewise a trader will use knowledge of fundamental analysis and analysis of market cycles.
These are two sides of one medal, proper analysis, and none of the sides should be neglected.
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