Stock market trading and investing are the two best ways to invest in the stock market. To begin with, it is essential to note that while investing is long-term, trading is relatively short-term.
While the main objective of both approaches is to maximise profits, you should decide which best suits your requirements. In this article, we will explore investing and trading in some detail. Let’s get started.
An Overview of Investing
Investing involves purchasing assets like stocks to generate income or profit over an extended period. Rather than spending money immediately, you set it aside, expecting a reasonable return.
Constructing a diverse portfolio of stocks and other investments, such as bonds and mutual funds, can facilitate wealth-building over many years or decades. Long-term investors tend to choose stocks of companies that exhibit solid financials and business fundamentals, indicating the potential for sustained growth. Open a free demat account now to start investing.
An Overview of Trading
Trading refers to buying and selling securities like stocks over shorter timeframes ranging from days to weeks to make quick returns. Whereas an investor may target 15-20% annual returns, a trader could aim for 15% monthly returns. However, intraday trading carries a higher risk.
To trade, you need to open a trading account and a demat account that electronically holds your securities. While investing involves buying and holding long-term, trading seeks to profit short-term from price movements. Traders utilize technical analysis indicators like Stochastics, Moving Averages, RSI, and MACD to identify favorable trade entry and exit points.
Investing vs. Trading
Let us understand the difference between trading and investing with the help of a table.
| S.No. | Parameter of Difference | Investing | Trading |
| 1. | Risk Involved | Limited impact of short-term volatility of the market. Less risk involved. | Significant impact of the short-term volatilities in the market. The risk involved is more. |
| 2. | Efforts Involved | Relatively less efforts are involved. | It involves significant efforts on a day-to-day basis. |
| 3. | Period | Long term. Some investors hold their investment even for decades. | Short-term in nature. For example, intra-day trading. |
| 4. | Expected Growth | It holds the possibility of making a gradual but sustained profit. | It holds the possibility of making quick profits. |
You can learn more about the essential concepts of finance in detail by watching learning videos, tutorials, and finance blogs. You could also go in for video lectures and tutorials based on your preferences. Stock market learning platforms offer self-paced learning modules so you can learn all the essential concepts at your own pace.
Conclusion
Investing and trading involve purchasing and selling financial instruments such as stocks, bonds, mutual funds, and exchange-traded funds. While both goals are to make your money grow, the difference between the two lies in the timeline.
In this article, we’ve seen that while stock trading involves buying and selling shares for a short period, investing refers to buying and selling stocks for long-term gains. While a day or a week qualifies as short-term, long-term in the stock market’s vocabulary usually refers to months or even years.
