When it comes to creating wealth, investing and trading are the most frequently encountered terminologies in the financial market. Investing and trading in stock is one of the best ways to make money or let your money multiple while you are busy with life. By trading in stocks, you allow your money to work for you. When trading and investing in stock, it is advisable to use a stocks broker. Stockbrokers understand the market quite well, and they are in a position to offer the best advice when it comes to buying and selling stocks. Considering the emergence of online trading, there is a decreased involvement and need of brokers. Investing and trading in stocks can be overly rewarding, especially when the right decisions are made. Below are factors to consider when trading and investing in stocks.
- Expected returns- mainly determined by the duration
- Liquidity-how quickly can the stocks be converted into money through sale or maturity of the investment
- Market volatility
- Risk -Return analysis
People tend to use the terms investing and trading interchangeably in the stock market, but in the real sense, the two terms are different. Below are some of the major differences between investing and trading in the stock market.
This is the duration which the trader or investor holds on to their stocks. In trading, the trader holds the stocks for a short time. The time could range from a week to a day or, more often, some hours. Market fluctuations heavily influence trading. On the other hand, investing revolves around the principle of buy and hold. The duration is long and could range from months to years. The best thing about investing is that the short-term market fluctuations are insignificant.
Skill vs. Art
Trading and investing involve different dynamics. Traders tend to be technical and skilled people who have learned the skill of timing the market. They know all the market trends allowing them to hit high profits over a short time. Traders also have a good understanding of market psychology. On the other hand, investors can analyze the stocks they intend to invest in. the investor has to learn the fundamentals of the business.
Indisputably both investing and trading impose risk on your capital investment, but the level of risk is considerably different. Trading has more risks than investing but has a higher return on investments since the prices can go higher or lower within a short period. Visit VectorVest to know how are stock options taxed and to see strategies in investing. On the other hand, investing imposes relatively low risk and returns in the short run. The returns are gained by investing in stocks are based on compounding interest and dividends, which are subject to time. In conclusion, traders buy and sell stocks quickly, enabling them to gain significant profit margins. Any mistake resulting in wrong timing could cause a tremendous loss. Traders are mainly interested in the current performance of the companies. On the other hand, investors invest in stocks based on the future value of the company. The investor has to be patient to allow the stock to reach its maximum potential.