Introduction
Trading refers to the buying and selling financial assets such as stocks, cryptocurrencies, forex, commodities etc. with the aim to gain quick profit in short time. On the other hand, investing is an act of buying assets such as stocks, bonds, mutual funds etc. and holding them with the aim of building wealth gradually in the long run. In this post we are going to explain key differences between trading and investing options that helps you to understand which is right for you.
Difference Between Trading And Investing
Major dissimilarities between trading and investing can be pointed out as follows:
1. Meaning
Trading: It is a short term strategy of buying and selling financial assets to make profit from price fluctuations.
Investing: It refers to the long-term strategy of buying and holding assets for a long period of time to build wealth
2. Time Horizon
Trading: In trading strategy assets are bought and sold within few minutes to few weeks. So, it has shorter time horizon than investing
Investing: It requires long-term commitment so assets are hold for long period of time (years or decades)
3. Pros
Trading: The main advantages of trading are:
* High profit potential
* More opportunity due to market volatility
* Flexible and dynamic
Investing: The major advantages of investing are:
* Less riskier than trading
* Lower emotional stress
* Tax advantages
4. Cons
Trading: Some major disadvantages of trading are as follows:
* High costs and taxes
* Involves high risks
* More emotional stress
Investing: Main drawbacks of investing are as follows:
* Slower growth rate
* Needs patience and commitment
* Limited short-term profits
5. Potential Returns
Trading: It has high return potential than investing
Investing: Lower but steady income
6. Transaction Frequency
Trading: It has high transaction frequency because of frequent trading of assets
Investing: Low transaction frequency than trading because it involves fewer transactions
7. Time And Effort Required
Trading: It requires more time, effort and regular monitoring
Investing: It requires less time and effort than trading
8. Goal/ Objective
Trading: The primary goal of trading is to generate significant profits in short term
Investing: The main objective of investing is to build over time
Trading Vs Investing (Comparison Table)
|
Basis |
Trading |
Investing |
|
Goal |
To earn quick profit |
To build wealth |
|
Risk Level |
High |
Low |
|
Potential returns |
High but inconsistent |
Low but steady |
|
Taxes and costs |
High |
Less |
|
Transaction Frequency |
More |
Fewer |
|
Time Horizon |
Short-term |
Long-term |
|
Effort And Time |
More |
Less |
|
Constant monitoring |
Required |
Not required |
Which Strategy Is Right For You ?
It depends on your knowledge, skills, personality and your financial goals. You can choose trading if your goal is to generate quick profits, have enough time and if you can tolerate risks. If you wish to build wealth in the long run and cannot tolerate risks you can choose investing option. Or you can use mixed approach.
