Investing and trading are two different methods of trying to make profits in the financial markets. Kavan Choksi Wealth Advisor mentions that both investors and traders do seek profits through market participation. However, investors generally aim to avail higher returns over an extended period through buying and holding. On the other hand, traders take advantage of both rising and falling markets in order to enter and exit positions over a shorter time frame, making smaller but more frequent profits.
Kavan Choksi Wealth Advisor sheds light into the difference between stock market trading and investing
The prime difference between stock market trading and investing is the type of approach involved in both methods. The fundamental analysis of a company is used for investing, while usually the technical analysis is taken into account in trading. Fundamental analysis involves the financial analysis of the company and analysis of the industry on which the company is based. It also evaluates the overall performance of the industry as per the macroeconomic situation in the nation. Conversely, technical analysis deals with everyday financial trends, including the performance of the company based on daily uptrends and downtrends in the market. For technical analysis, traders need to closely study a company daily, especially its charts and numbers in the stock market. This data is used by traders to make important predictions about the changes. They largely focus on studying market trends in volume, price, and moving averages.
There is also a major difference in the time involved in trading and investing. The latter involves closely studying a company and holding its shares for a long period of time with the expectations of making profits in the long run. Investing in baskets of stocks for long holding positions usually doesn’t involve much risks. It may also not provide too high profits, but is a relatively safe investment approach. The time frame for holding shares can range from a few months to even years. Under this approach, trends that last for a shorter period do not make any difference to the investors.
Trading in the stock market, on the other hand, is a short-term investment method. As per Kavan Choksi Wealth Advisor, traders generally buy and sell shares within weeks or days. In fact, they can buy and sell off shares in a single day itself. Stock market trading has a high risk-reward ratio as the market is volatile. This approach not only allows the traders to make fast transactions but also earn more in comparison to the long-term investors. Traders need to act in a dynamic manner and should focus on timing the market right.
On the whole, investing is a comparatively easier game than trading. Stock market trading requires good knowledge and skills. A good trader is able to identify price movement in a fraction of a second. People with proper knowledge and a good sense of the market can try their luck in trading, while risk adverse individuals should focus on investing in the market for the long term.
