Both trading and investment are two different methods of making a profit in the stock market. However, the methods used in both approaches are different, and how they work and the time they take is also contradictory to each other.
The reason why everyone should invest or trade in stock market shows in the table. Today, here in this article, we will study the concepts of trading and investment in the market.
What is Trading?
Trading is nothing but a concept of buying and selling of goods or services, or both between parties and the buyer pays compensation to the seller. Trade can occur within an economy between consumers and producers. In international trading, there is an exchange of goods and services between countries.
But in the financial markets, trading means exchange or buying and selling of securities like buying stock from the New York Stock Exchange (NYSE).
Trade controls the wheels of progress in any country or society and helps to make wealth.
Types of Trading
- Scalping In scalping, a trader makes hundreds or thousands of trades every day to get “scalp”, which is a small profit from each trade.
- Swing Trading In Swing Trading, traders hold their positions for more than one day. Sometimes they hold the position for several days or a few weeks.
- Day Trading Day trading is for those who are not comfortable with either scalping or swing trading. In day trading, traders take both enter and exit positions on the same day and reduce the risk of large overnight moves.
- Fundamental Trading Fundamental trading companies are based on fundamental analysis, inspecting reorganisations, corporate events, stock splits, or acquisitions, incredibly real or anticipated earnings reports.
- Technical Trading Technical traders concentrate on graphs and charts. They evaluate the lines on the index or stock graphs for signs of connection or divergence, which indicate signals to buy or sell.
- Momentum Trading Momentum traders look for those stocks that are moving appreciably only in one direction and in the high volume. These traders try to do well in the future to get the desired profit.
What is Investing?
An investment is an item or asset that is accumulated to generate income or profit, or recognition. The purchase of goods or services in investment is not to be consumed today but used to generate wealth in the future. Those things which lose their value after some time and use are not considered as an investment.
Personal investing is about buying property or financial securities to make a good profit. In the finance world, an investment is a type of financial asset purchased with the plan that the asset will give income in future or later it will be sold at a higher price to make a profit.
Types of Investment
- Stocks Stocks represent a small share of a company that you own. Companies sell their stocks to raise money to operate. Stocks or shares deliver the highest return out of all investment methods, but they are also considered the riskiest type of investment.
- Bonds Bonds are also a type of securities that are generally considered a low-risk investment. Bonds allow other entities to borrow money from you and later on pays you a fixed rate of interest.
- Mutual funds Mutual funds hold combined money from many people. This money is further invested in various securities, including stocks, money market, bonds, etc.
- Money market funds Money market funds carry the lowest risks than all investment methods. They invest the money solely in the short-term and high-quality investments issued by government corporations or local and state governments.
- Exchange-traded funds ETFs are certain types of index funds that try to match indexes like the S&P 500.
- Options Options are based upon possible future transactions. Investors have the right to trade in the assets in future at a certain price.
- Retirement Accounts Retirement accounts, like 401(k) and IRA accounts, are tax-advantaged plans designed to prepare people for their future retirement
- Real estate Real estate investment is buying real property or land, like commercial lots or personal homes.
- Alternative and Complex Products An alternative investment is not in the stock, bond or cash category.
- Commodities Commodities are raw material or agricultural products bought or sold, such as rice, coffee, pork bellies etc. Commodities also include precious metals and energies like gold, silver, petroleum etc.
- Insurance Insurance plans are designed to meet specific motives or objectives such as whole life, term life, and universal life insurance.
Difference Between Trading and Investment
- Period Trading is a technique of keeping stocks for a short span of time. The time could be more than a day or for a week. In investment, the Investors put their money for a more extended period. It could be some years, decades or longer time.
- Risk There is a risk in both trading and investment. But in comparison to investment, trading contains higher risk because the prices of assets increase and decrease in a short time. On the other hand, investment takes more time to develop, but it comprises lower risk and gives good returns in a more extended period of time.
- Capital Growth Investors check out the price fluctuations of the shares in the market. If the price of shares increases, investors sell out the stocks to profit and if the price decreases, then buy stocks. That is why trading is called a skill of timing. On the other hand, Investing is such an art of making wealth by magnifying the interest and dividend for years by keeping the quality stocks.
When it comes to making a profit, both approaches are useful. It depends on the trader or investor where they want to invest their money. If someone is patient enough to hold the asset for a long time to gain a profit, then he/she should go for investment. And if someone believes in instant results, then he/she should go for trading to get a profit.