April 30, 2017

The Difference between Trading and Investing: Which is a Better Fit for You?

Investing and trading are two different ways on how you can make your money grow through profiting from the vast financial markets. You may find that these two concepts sound similar when you are asked whether you are spending money on stocks, or in an entire company. What makes them different anyway?

Long-term Investment

A person is considered an investor when his resources are being placed on a certain company or product for a long time, in hopes that these resources would expand over time. You are considered to be an investor when you make profit by buying and holding portfolios that may involve stocks, bonds, mutual funds, and other similar instruments. Investors improve the amount of money they may earn through reinvesting the profits that they have already earned, or even dividends from investments, to get additional stock shares.

Investors are people who are more concerned about the fundamental movements in the market, and how the companies they put their resources on are being managed. They are also the ones who make critical analysis on the potential of a company, because their resources are most probably to be locked in on a single product for a very long time. They are also the ones that are concerned about market falls of stocks, and they aim to determine if it is a long-term occurrence or not, so they can move their resources elsewhere. Investors would normally enjoy 10-15% return of investment in a year, but that would get better if the product or company that they invested on thrives.

Trading or Stocks Investment

Trading would require you to spend a considerable amount of money on stocks or commodities, but that does not necessarily mean that you would hold on to them for a long time. Trading is termed as such because it involves buying and selling based on the price movement of these items. Traders generate profit by seeking a 10% return each month, which they get by buying at a lower price then selling at a much higher price in the near future. While trading seems profitable, people who delve in this trade also experience losses when they sell “short” on certain markets to experience a relatively low return of investment on falling markets.

Traders often use certain tools to analyze their selling position in the market, such as moving averages, to determine the best trading setup to use. Some brokerages provide great tools to support both active traders and investors, if you are an active one you might be interested in checking this Optionsxpress review. Their selling style are also best determined by the amount of time that they hold stocks, commodities, and other instruments that they purchase, for them to sell these for better profit. Position traders are those who hold on to their goods for months or years, while swing traders are those who would hold their positions for only a few days or weeks. There are also more frequent traders, such as day traders, who would only hold and sell their commodities within the day, and scalp traders, who would only hold their goods within minutes. The selling style would largely depend on one’s ability to predict risks, accompanied with the attitude they have towards their movable investment.

Conclusion

Investing is most probably for you if you want to have a more lucrative profit by waiting out a certain company to grow, but if you are the kind of person that would rather make smaller amount of money but in quick successions, you may want to make a living instead on buying and selling stocks. The type of investment that you would do would largely depend on your needs and personality – if you like to think about how relaxing your retirement is, you may want to start building empires through large investments, but if you want to make the most killing now, trading is probably for you.