EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Investing vs Trading

By Madhuri ThakurMadhuri Thakur

Home » Finance » Blog » Trading for dummies » Investing vs Trading

investing vs trading

Investing vs Trading – Why people participate in the stock market or in the financial market?… The very obvious answer is to make a profit. The goal behind this is to build wealth over existing income. However Investing vs Trading, can be achieved depending upon the duration and the position which they hold.

Investing vs Trading Infographics

Learn the juice of this article in just a single minute, Investing vs Trading Infographics.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Investing-vs-Trading1

INVESTING

“INVESTMENT “ the word is quite lengthy, isn’t it?… Yes, it is. The meaning hidden behind this word is also long as the goal of investing in anything is to build wealth over a prolonged period of time through different ways like buying and holding the portfolio of stocks or mutual funds, bonds over a long period of time.

In a polished language Equity investing involves the building of a portfolio of stocks and managing its performance for an unbounded period of time. Thus whenever the expected performance is about to be achieved then suitable market actions are carried out. The time period can be off days, years or even decades with the advantage of interest, dividends or stock splits, etc. So basically the main aim is all about creating an income and achieving growth.

Then how investors are defined? It’s very simple, individuals who do investments are called as Investors. These investors enhance their profits through compounding or reinvesting any profits and dividends.

why-invest

In the situation of market fluctuation, investors drive towards the downtrends with the hope of bouncing back of prices. Thus with research on company fundamentals and other techniques like technical analysis one creates a portfolio of different stocks.

Types of Portfolios

portfolio
Through research and fundamental analysis, one tries to create a balanced portfolio of different stocks.
Some sorts of portfolios are:

Index Tracker Portfolios

This type of portfolio is constructed in a manner to track a broad market index or a segment thereof. They invest in all or a representative number of the securities in the index. This portfolio will be set up in a manner to follow movements in those indices. For e.g. the S&P 500 index. This kind of investing is known as Passive investing.

Popular Course in this category
Sale
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Cryptocurrency Training (8 Courses)CFA level 1 Course with Mock Tests & Solutions (18 Courses, 3+ Mock Tests with Solutions)Equity Research Training (17 Courses)

High Dividend Portfolios

These are the portfolios that are made up of stocks with above-average dividend yields.

Blue Chip investment Portfolios

This consists of a highly recognized and financially sound company’s stocks. These blue-chip stocks are seen as a less volatile investment. These portfolios comprise of only top-rated stocks. 

These portfolios are managed either actively or passively.

Passively Managed Portfolios

In a passive strategy of portfolio management, investment is done with a predetermined policy that doesn’t involve any forecasting. Here the idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future.

Index portfolio which tracks the index movement as said above is a kind of passive portfolio management.

Actively Managed Portfolios

These portfolios are traded often. In this, the performance is less certain as it is dependent upon the decision making of the portfolio manager. The manager adventures market inefficiencies by purchasing the securities that are undervalued and short-selling securities that are overvalued.

TRADING

Trading is a more active and short-term strategy. It is all about buying and selling of shares or commodities or even currencies with the aim of making short to medium term gains, rather than long-term growth. The basic technique involved in trading is buying at a lower market price and selling it at a higher price within a small period of time or in a reverse way i.e. selling at a higher price and buying it again at a lower price to profit in dropping markets which are known as Short Selling. Traders need to be attentive to make profits within a time-frame they want to live in order to avoid losses. Hence they apply stop-loss strategy to automatically close the losing positions at a predetermined price level.

trader

Traders also use Technical analysis as a tool to find high profitability positions. Traders are classified depending upon the holding period or timeframe in which stocks or commodities are bought and sold. They choose their trading style based on factors like size of the account, time to be involved in, risk tolerance capability, Personality, and experience level.

 Some types of traders are:

Day Traders

These traders buy (or sell) the stocks in any day and close the position for profits on the same day. They do not hold overnight positions.

Scalp Traders

These traders make a number of trades every day and hold positions from seconds to minutes and try to make a very small profit on each. They will also close the position quickly in order to limit the losses.

Momentum Traders

These traders look for the situation where there is a high volume in a stock that is moving decisively one way or the other and trade in line with that trend. They will watch for that momentum to ease and then take profits.

Swing Trader

These traders look at the company’s fundamentals and hold positions longer than the other traders, but still looks for short to medium-term profits and buys and sells actively in the market.

From above it can be concluded that whether it’s a day trader or swing trader, a trader is looking to take profits frequently.

Trading strategies

Individual Stock Picking

Individual stock picking is a high-risk-high return form of trading. Whether alone, or within a portfolio, it requires research to pick the cheapest undervalued stock for buying an overvalued stock for selling.

Stocks vs. Index

In these long or short positions are based on index-based portfolios. In this, a contrary view index is taken for increasing the returns.

Market neutral trading

Market neutral trading is a strategy in which a trader seeks to profits from both increasing and decreasing prices in single or numerous markets. These traders who hold a market-neutral position are able to exploit any momentum in the market.

Here is a small table that will give you a snapshot difference between investing and trading for beginners.

Attributes

Investing

Trading

Duration Long-Term Short-Term, a few days or even minutes
Why With the belief that the company will do well in the future and come up with dividends and increased share price. A share will move in a certain direction to achieve the target.
Objective Making Money by holding shares. Making money with often buying and selling of shares.
Analysis Tools Fundamental analysis Technical Analysis, Charts.
Return Expected Investors invest with an expectation of a 10 to 15% annual return. Traders invest with a 10% return each month.

What is better Investing vs Trading?

investor-300x240 There is no hard and fast rule that one is good and other is bad.

You need to do analysis as to how much time you intend to spend in doing research on the difference between investing and trading for beginners. As from the above article, you must have understood that both the differences between investing and trading for beginners have their own requirements like doing fundamental analysis, reading the charts, keeping track of the graphs. So you need to ask yourself how much time you are ready to devote. If you can spend minimum time for doing the background research on an organization and that too once, then Long term investing is a better option for you and Investing vs Trading.

If you have an ample amount of time and if you aim at doing a lot of research activity to truly play the market with risk managing strategy then you can go for trading. Research entirely involves analyzing the financials of the company, historical price movements, future projections of the financials, etc. So this can be considered as a second job for you as you need to have a lot of energy and man-hours to be dedicated. Also, Trading tends to be expensive as every time you buy or sell stocks you have to pay certain fees, and for an active trader, these fees add up and you have to make sure that your returns should be high enough to pay your costs otherwise your returns will suffer.

Recommended Articles

So here are some that will help you to get more detail about the difference between investing and trading,  investing vs trading, investing or trading and also about investing and trading for beginners so just go through the link which is given below.

  1. Wealth Management In India
  2. Convertible Bonds
  3. Mutual Fund vs Exchange Traded Fund
  4. Proprietary Trading

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

9 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Trading for dummies
    • Contango and Backwardation
    • How to Trade Options?
    • Dimsum Bond
    • Nostro Account
    • Temporal Method
    • Spot Market
    • Pink Sheets
    • Trading Floor
    • Pump and Dump
    • Market Maker?
    • Pre-Market Trading
    • Publicly Traded Companies?
    • Share Swap?
    • Risk Reward
    • S&P 500 PE Ratio
    • PE Ratio of Nifty
    • Sharpe Ratio
    • Bull Trap
    • Fundamental Analysis vs Technical Analysis
    • Ripple vs Bitcoin
    • Ripple vs Litecoin
    • Sell Side vs Buy Side
    • Gamma Function Formula
    • Bitcoin vs Blockchain
    • Bitcoin vs Litecoin
    • Call Option vs Put Option
    • European option vs American option
    • Futures vs Forward
    • Stop Loss Order
    • Hyperledger
    • Floating Stock
    • Option Adjusted Spread
    • Penny Stocks
    • Contango vs Backwardation
    • Investing vs Trading
    • Features Of Convertible Bonds
    • Confirmation Bias Example
    • Currency Trading
    • Indian Stock Market
    • Invest in Fundamentals
    • Futures Trading
    • Technical Analysis Indicator
    • Forex Trading
    • Commodity Trading
    • Forex Trading Strategies
    • Futures Fundamentals
    • Play the Stock Market Game
    • Binary Options Trading
    • Commodities Stock Market
    • Trading Tools
    • Mistakes to Avoid While Day Trading
    • Bitcoin vs Ethereum
    • Future vs Option
    • Option vs Warrant
    • Stock Market Trading
    • Proprietary Trading
    • Employee Stock Options
    • Litecoin vs Ethereum
    • Forex Trading For Beginners
    • Variance vs Covariance
    • Trading Securities
    • Stock Futures Trading
    • Above the Line vs Below the Line
    • Stock Market Chart Patterns
    • Swing Trading Strategies
    • Currency Exchange Market
    • Forex Brokers
  • Accounting fundamentals (658+)
  • Asset Management Tutorial (198+)
  • Banking (44+)
  • Corporate Finance Basics (248+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Finance Formula (382+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (120+)
  • Investment Banking Careers (26+)
  • valuation basics (27+)
Finance Blog Courses
  • Online Cryptocurrency Certification
  • Online CFA Level 1 Training
  • Equity Research Training
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

Independence Day Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) Learn More