Did you know that in 2020, 55% of Americans reported that they owned stocks? If you are looking to grow your wealth and your money it is a smart idea to become familiar with both investing basics and trading basics. In the short guide below we will cover investing vs trading, to help you understand the main differences.
Keep reading to learn the key differences before you spend your money and end up losing it.
Those that invest their money in the stock market analyze all of the long-term trends. Investors tend to want to stay in the markets they choose for a long period of time. An investor will look at the weekly and monthly trends when deciding which stocks to choose.
There are some investors that do not care if there is a recession and they will continue to invest because they are focused on long-term growth and not short-term gains. They use what’s known as a “buy and hold” approach.
Someone that is trading is more focused on the short term moves vs analyzing the long term numbers we discussed above. There are some traders that will only hold a stock or a position for a couple of seconds for quick breakouts and during the market’s momentum.
Another name for traders is speculators. Daily, a trader will open dozens of deals and their goal is to make a small profit on every single trade they open. There are quite a few different strategies for trading to choose from.
You can take a look at this link https://optionstradingedu.com/options-trading-strategies/ to learn more about some of the strategies used.
Another main difference is that a trader will depend on the market fluctuating vs it staying steady. They thrive when there are ups and downs because this is how they make money. When there are no strong movements then they will have a hard time making profits.
An investor, on the other hand, fears when the market is volatile because this increases the risk in their portfolio by 100%. When the stocks become super volatile an investor might choose to liquidate their positions instead of risking all of their money.
Because of market fluctuations, a trader has to actively manage their risks when they are trading. The goal of a trader is to make the most amount of profit from short-term movements in price. This is why a trader will benefit from leverage which is trading position sizes that are a lot higher than their original trading accounts.
Feeling Like an Investing vs Trading Pro?
We hope that now that we went over the key differences between investing vs trading you can now make an informed decision on whether you want to invest or you want to trade. There is no right or wrong way, the key is to do what will work best for you and what you feel comfortable doing.
Found this article useful? Please browse the rest of this section for our latest finance tips and tricks.