Are you looking to enter the stock market but confused between trading and investing? Well then, this confusion is right and it is a good thing that you want to know the difference between the both!
Now, what makes us say that? It is a fact that most people usually use both terms interchangeably – it means, they consider trading and investing the same.
However, that’s not right. Hence, we congratulate you for asking the right question.
As a Stock Market Institute in Pune, we focus on getting the basics right. Making people understand the difference between stock trading and investing is one of them.
So, let’s see what makes both these activities different.
What is Stock Market Trading and Investing?
Trading is a short-term strategy that focuses on buying and selling stocks frequently. In trading, you aim to benefit from market fluctuations and price movements.
For example, you buy 10 stocks of a company for Rs. 100 each, and on the next day or the same day, you see it has reached Rs. 120. Thus, you decide to sell the stocks with a profit of Rs. 20 and a total profit booking of Rs. 200 in a day or on the same day.
Thus, trading focuses on short-term or quick gains. Some common types include;
- Day Trading: Buying and selling stocks within the same trading day to earn profits from small price changes or movements.
- Swing Trading: Purchasing stocks and holding them for some days or weeks while monitoring them to capture short- to medium-term profits.
- Options Trading: Trading stock options that give the right but not the obligation to buy or sell a stock at a predetermined price.
Want to know more about Swing Trading then why to wait? Read our blog “Beginner’s Guide to Swing Trading for Riding Market Trends” to get more information.
Let’s now see what you mean by investing.
Investing involves buying and holding shares to generate wealth over a period. It is a long-term strategy that focuses on holding assets like stocks, mutual funds, bonds, etc., for years to benefit from the company’s long-term growth and profits.
Now that we know the basic concepts, let’s look at some of the differences between stock market trading and stock market investing.
| Aspect | Stock Market Trading | Stock Market Investing |
| Timeframe | Trading focuses on short-term gains. Hence, traders invest money for a few hours, days to some weeks, and continuously monitor the stock price movements to capitalize on the right movement. | Investment involves investing money in the long run. Unlike trading which focuses on quick gains, investment focuses on building wealth in the long run and benefitting from an asset’s long-term growth prospects. |
| Risk Profile | The risk is usually high as traders attempt to time market movements and predict short-term ups and downs. However, a stock might not necessarily perform based on a trader’s predictions. | Investment holds a much lower risk as investors rely on the long-term prospects of an asset. Thus, short-term changes or downs don’t necessarily affect an investor’s money. It involves depending on the overall growth of the market or companies. |
| Skill Set Required | Stock market traders should be well-versed in techniques like technical analysis, understanding of the market sentiment, and chart reading to make movement predictions, and trading decisions. | Investment focuses on fundamental analysis, understanding a company’s financial health, and the larger economic trends. Investors usually don’t pay much attention to short-term changes as they look at the bigger picture. |
| Returns and Expectations | Trading can deliver potentially high short-term returns. If a particular stock shoots up, a trader monitoring it who can time it, can make a significant profit in a short period. However, with that also comes a higher amount of risk. An underperforming stock can lead to unexpected losses as well! | Investing doesn’t focus on short-term and quick profits. Instead, it delivers steady and lower-risk returns over a wider timeframe with the potential for significant growth due to the compounding effect. |
| Involvement Level | Traders must frequently or continuously monitor the market and make timely decisions to turn a trade potentially profitable. Hence, the level of involvement is usually high. | Investors invest money in the long run. Hence, they don’t look at market movements as frequently, unless there’s a big update or news about a particular sector, company, or asset. Accordingly, they review the market periodically, thus denoting a lower level of involvement. |
Should You Trade or Invest?
Trading or investing is a significant wealth-building strategy. It is important to know what both mean and use them strategically to stay profitable in the stock market.
Remember, you can do both. It means you can trade as well as invest, depending on your risk profile, overall approach, and financial objectives. For instance, you can trade in some stocks (small cap), while investing in some (large cap).
Nevertheless, learning both is crucial. For that, you must pursue stock market courses in Pune. Wealth Note, a trusted trading institute in Pune, is here to offer them.
Our range of investment and Trading Courses in Pune educate you about various technical aspects of the stock market, making you an informed and educated player.
Call us at +91 7068001919 to learn more about our Stock Market Courses in Pune.