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Are you confused between the two concepts of Investing & Trading and do not know which one Is more suitable and profitable in the stock market? Well, don’t worry.
In this blog you will read in detail about what factors influence the returns in both- Investing & Trading and which one is more profitable and riskier in general.
Let’s get into it!
What is Investing?
If you plan to increase your capital exponentially over a long period of time, then investment is a viable option. You can use various investment tools (such as stocks, mutual funds, etc.) to do this.
The waiting time for profit here ranges from several years to several decades. During this period, some investment advantages such as interest, dividends and stock splits will help your wealth grow exponentially. If you want to try to increase your wealth by investing in multiple stocks (such as these AstraZeneca stocks and stocks that other investors may buy or trade). The market is of course volatile, but since this is a long-term process, investors usually offset profits and losses in time. Understand this.
What is Trading?
Transactions are carried out on a regular basis and involve buying and selling commodities, which can be stocks, currency pairs or anything else, but in the end, they will bring direct and short-term benefits in the same month.
In order to maximize profits, traders buy at a lower price and sell at a slightly higher price. Another type of behavior that occurs is called short selling, where traders sell high and short. The price is significantly reduced.
Which is More Profitable?
Although both trading and investing are related to financial markets and assets, trading and investment are actually two different activities with different purposes, so it is difficult to compare and generalize. However, it should be noted that trading can also mean higher profits. Investors can expect an 8-10% return on their investment portfolio each year. But traders can expect to earn the same or more every month. Even traders who “only” earn 5% a month will end up with a simple 60% annual return.
For these reasons, it is difficult to describe any strategy as the “best” entry into the stock market. If you have a low tolerance for risk and want to avoid volatility, then investment is the best choice. If you are at high risk and want to make huge profits quickly, trading may be very attractive.
It is important to understand that trading and investment do not have to be mutually exclusive. For example, you can invest 90% of your funds in a long-term diversified portfolio, and the other 10% can be used for speculative short trades.
Investment is a process that is mainly applicable to retirement accounts and the like. It has an expanded focus and is gradually established over time. You will definitely get a return on investment, but it will be long-term, not instant.
Trading focuses on active short-term strategies and involves understanding the timing of market changes. You need to buy stocks at the right time and sell them at the right time. The return is immediate, ranging from daily, monthly to double quarterly.
Short-term losses will not affect investors in any way, because they can easily withstand temporary market fluctuations. However, traders need to rely on current market conditions to maximize their profits.
There are capital risks in both cases. There are greater risks in trading and the potential for higher returns. Investment is often seen by many as an advanced skill that requires sufficient resources. The risk is low, but the return takes a long time. In addition, investment is not affected by daily market cycles.
1# Risk Factors
There is no doubt that the stock market is risky. There are two risks of trading or investment. But investment is less risky than trading. Invest only in long-term profits. If investors invest their funds in a company with good fundamentals, they have the opportunity to get a good total return from the stock market.
If the stock price of a good company falls, you can hold it without losing money. Negotiations during short-term procurement and sales (or the same day). In the short term, when stock prices fall, it is very risky for traders.
2# Commissions
When buying stocks for a long time, investors pay less commissions than dealers. The transaction should pay more to the broker because the transaction is a continuous buying or selling or buying and selling process. Therefore, the seller must pay a commission for each transaction.
3# Focus
We always strive to invest our lives in good careers and receive good education for the future. When investing in equity, we also focus on companies with solid fundamentals that have a good reputation and growth potential.
They invest in these companies. The purpose of trading is to accumulate wealth by buying stocks, commodities, currencies or other instruments at low prices and selling them at high prices.
4# Cost
For investment, investors seeking a valuable share. Value behavior means quoting stock prices at lower prices related to basic business, earnings, and dividends. Trading is always looking for promotional prices, because traders want to buy according to the news and sell as soon as possible.
5# Analysis
To invest, perform a fundamental analysis before buying stocks. Fundamental analysis helps to understand the potential for future growth, information about companies, products, customers, balance sheets, etc.
In the long run, this is not bad. Traders perform technical analysis before buying or selling stocks. It can help traders understand previous price movements, trading volumes, technical charts and indicators.
6# Profitability
Investors looking for complex profitability. Example: If you invest $100 today, the cumulative annual rate of return is 25%. After 20 years, your investment is $14,098.15. This is the power of compound income.
Conclusion
Trading does not guarantee that you will have a return. Even investing in stocks does not guarantee that you have a fixed return, but at least when you invest in index funds, long-term returns are guaranteed. If you really want to get rich in life, please focus on your field of work and improve your skills and knowledge in that field.
Invest this money in index funds, mutual funds, and some of the large and medium-sized and other small and medium-sized companies you trust, and forget them for at least a few years.
Always invest in retirement, education, marriage and other goals. When you make enough money to achieve this goal, subtract that amount and use it to help you achieve your goal or keep it safe to deposit debt where your capital is.
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