between Trading and Investing
There are two ways by which
you can earn money in the stock market either by Trading or Investing. People
who are relatively new often tend to get confused and they mistake Trading as
Investing. In reality, these are two different approaches to generate income form
the stock market. Appropriate knowledge of the two helps you make a better choice,
minimize risks and increase the profit earning prospects.
Let’s first look at the meaning
of both the terms:
Meaning of Trading
Trading is all about buying
and selling of shares in the market on daily basis. It is a way to earn quick
profits by buying stocks and selling them off the same day or the day after. Traders
always buy stocks at a lower price and sell them when the price shoots up.
Stop-loss orders are used as safety measure by traders to protect them from
incurring heavy losses.
Meaning of Investing
Investing means buying of
stocks and holding on to them for a longer period of time. The investment can
be for years or even decades. It is done with a purpose to earn rich dividends
annually and reinvesting the earned profits into additional stocks of shares. The
daily market upheaval does not make much of a difference to long term
Difference between Trading and
Purpose – The purpose of both Trading
and Investing is obviously to earn profit. But the key difference with Trading
is that it is done to get an immediate return through daily buying and selling
of stocks while the purpose of Investing is to build wealth through compounding
interests and rich dividends in the long run.
Period – More
often than not, a trader sells his stocks the very same day he buys, the moment
the price of the stocks increases. In some cases, he holds his buys for a day
or maximum for a week. An investor buys
stocks and holds them for years or decades.
Return – A
trader can get a return of somewhere 10 to 15% a month while an Investor gets
10 to 15% annually.
Risk – Compared to Investing,
risks run high in Trading as it is aimed at earning higher profits at a short
time. But setting a stop-loss order minimizes the risk of Trading to a great
degree. Investing involves low risk. So the return is relatively low.
Protection – A
trader often protects his trading capital by setting stop-loss. When the
unexpected happens and the market crashes, the stop-loss orders automatically
sell the stocks at the pre-decided rates. Thus it saves traders from suffering
a huge loss. Investors need to wait and watch in case of a crisis and expect
the situation to improve so that the losses are recovered.
known the differences, you will want to make a choice for yourself whether you
want to become a trader or an investor. At Indira Securities, we conduct short
and intensive training programs for beginners on how to trade and invest. Our hands-on
training and expert advice help you make wise trading and investing decisions. Open
a Demat account with us to enjoy all-time quality services.